How ‘Undiscussables’ Can Undermine an Organization

The article Don’t Mention It: How ‘Undiscussables’ Can Undermine an Organization in Knowledge@Wharton has some interesting pointers about how and why risks are ignored:

After everything falls apart, the failures to act become obvious: Why didn’t somebody at Penn State do more to pursue allegations that former assistant football coach Jerry Sandusky was sexually abusing young boys? Didn’t anybody at MF Global Holdings notice that something was wrong before $1.2 billion in customer cash disappeared? Why, decade after decade, didn’t anyone at Olympus protest $1.7 billion in accounting irregularities?

So, why does this happen? The article lays out the following scenarios:

Lack of Clarity: Problems are not obvious to everyone, many have self doubts
Fear of Retribution: Difficult to point a finger at the boss or his peers
Group Loyalty: Protecting the team
Group Dynamics: Desire to not stir the water

So what we R&D managers do to ameliorate this? The article suggests the following (very hard to do, and almost impossible to do well):

Companies should also establish metrics, routines, audits and incentives to help identify problems and suggest areas of change, says Wharton management professor Lawrence G. Hrebiniak, who has acted as a consultant to dozens of companies such as General Electric, AT&T, Microsoft and DuPont. When top management diligently works to measure performance, elicit feedback and respond openly to problems when raised, it can usually make progress, Hrebiniak has found. “Control systems are important to implementing strategy and identifying problems,” he says.

The problem, of course, is with the senior leadership that makes topics undiscussable:

When companies have a culture in which managers are “more interested in hiding things than solving problems,” there is little anyone can do to help, Hrebiniak says. “You need top management to react strongly. If they bury the stuff, they’re dead.

Is Morale Irrelevant?

A quick post about Is Morale Irrelevant? in the Sloan Review:

“However, a lackluster economy should not give organizational leaders a “free pass” to ignore morale issues. With all of the changes that occur in any organization over time, employee morale will undoubtedly be affected. ”

Here is the take away:

While turnover associated with low morale may not be as likely during uncertain economic times, productivity and performance issues should command executives’ attention. There is still debate over whether a happy worker is always a productive worker, but researchers and businesspeople alike are likely to agree that low morale will not help boost productivity or improve performance. More generally, senior leaders should realize that low morale can be detrimental to the overall climate and culture of their organizations. Low morale stifles “going-the-extra-mile” behavior, and an “it’s-not-my-job” syndrome can become epidemic when managers are not paying attention to the organizational climate they are creating. Over time, a decline in organizational citizenship behavior can translate into an unhealthy cultural shift that erodes the business’s overall competitiveness.

Gaining a New Understanding of Risk

A short article in the Sloan Review discusses Gaining a New Understanding of Risk: “

In these days of uncertain markets – and an uncertain economy – risk can seem almost omnipresent in business. But how do you manage risk prudently – yet still grow your company? Harvard Business School Professor Robert S. Kaplan That timely question reminds me of an interesting talk I heard this past summer by Harvard Business School professor (and MIT alumnus) Robert S. Kaplan. Kaplan is perhaps best known for his work codeveloping the Balanced Scorecard concept.”

The article points out that risk management is hard:

On the other hand, it’s not easy measuring risk – something Kaplan acknowledged. What makes risk management so hard, he observed, is that you’re trying to quantify things that may have never occurred and may never occur. “You can’t rely totally on measurement,” he said.

The article discusses three types of risks and approaches to address them (listed below). The key take away for me is that some employees will take unauthorized actions to maximize their rewards. Organizations have to work more more diligently to control this behavior. I really like this quote:

“If you have high-powered incentives, you’d better have even higher-powered control systems”

We have often talked about problems with incentive plans (risk taking, performance, fudging results, etc). The common complaint I hear from executives about properly controlled incentive plans is that it is too hard to do. May be we need to remember this quote from Prof. Kaplan…

Getting more from your training programs

The article Getting more from your training programs in McKinsey Quarterly has some interesting data:

Companies around the world spend up to $100 billion a year1 to train employees in the skills they need to improve corporate performance
Only one-quarter of the respondents to a recent McKinsey survey said their training programs measurably improved business performance, and
Most companies don’t even bother to track the returns they get on their investments in training.
Training is generally provided because employees often need new skills to deal with changes in an organization’s strategy or performance.

We have talked about the importance of evaluating and measuring training programs. We have discussed approaches to rigorously explore the value delivered by training programs. The overall message is that change through training is difficult and (as we have discussed in the past) managers need to be vigilant to get value out of training. This article provides a handy checklist:

1. Create a need or a desire in the staff to receive training. This can be done by clearly delineating the problem that the training is trying to solve and involving at least some of the staff in generating the training. Here is a handy description of how people avoid training.

Instead of approaching training as active learners, many employees behave as if they were prisoners (“I’m here because I have to be”), vacationers (“I don’t mind being here—it’s a nice break from doing real work”), or professors (“Everybody else is here to learn; I can just share my wisdom”).

2. Uncover the mindset or culture that is underlying the behavior that requires change. Ensure that the mindset is addressed explicitly – remembering that the training alone cannot change mindset.

For instance, a big-box retailer had been trying to increase its focus on customers for more than two years. It invested millions of dollars in teaching a five-step selling process, monitoring customer feedback, and rolling out e-learning programs to improve its employees’ knowledge of the products it sold. Salespeople passed every certification test they were given yet still didn’t use the new skills on the floor. Customer feedback and store performance remained lackluster.

An examination of the mindset showed that

salespeople clung to age, gender, and racial stereotypes about which customers would make purchases—and tended to ignore the others.

3. Ensure leaders and managers are on board with the new behavior that the training is supposed to implement. This has been the biggest problem in many implementations I have been part of. More on it below.

A closer examination revealed that the new marketing skills hadn’t taken root, because the company hadn’t trained the department’s leaders, who lacked the necessary skills and could not be effective role models. Further, the leaders were not prepared to change the way they ran meetings, made decisions about branding or advertising programs, conducted performance dialogues, or coached others on marketing skills.

4. Managers and executives should reinforce the new skills as frequently as possible. Unless leaders are completely sold on the new way of doing business, training will not be successful.

To show that things would be different this time, the executives insisted that the conversations take place and even shadowed the supervisors on the shop floor to help them. While this was uncomfortable for everyone involved, the supervisors soon gained confidence using the new skills and began to see results. Indeed, within just two months, productivity, reliability, and safety performance had all improved, and the plant was able to produce 25 percent more output than it had in the past.

5. Measure the impact of new training and ensure it is delivering value.

One more quick point:

“selected employees in the adjacent departments must be retrained in complementary skills. In a purchasing program, this might mean teaching product developers and people who find supplies for new products how to interpret total-cost-of-ownership analyses so they can set specifications that fit the new procurement strategy. Changes can go as far as altering the development of new products or launching processes to fit the new procurement system. Such a holistic approach helps to set the right expectations and to align employees collectively with the new behavior.”

Enhancing multinational multicultural team efficiency

We have discussed how team become virtual even if the members are just on different floors of the same building. We have also discussed barriers to the success of large teams. Corporate Executive Board provides two more points to keep in mind:

1. Set up organization structures and processes to work across cultural diversity.

The firm created “local growth teams” consisting of regional experts in sales, marketing, and distribution, and “global product teams” of engineers and product specialists with visibility across all regions to avoid product proliferation or cannibalization.
The local teams are given incentives to maximize local growth and the global teams to maximize global product revenue. The firm then runs frequent sessions where all regional teams meet with each other and the global team to share ideas. This clear structure with its division of labor and supporting rules and processes leads to a harmonious and effective team.

2. Provide teams with effective tools to address diversity and communicate effectively across cultural barriers.

Schlumberger, an oil services firm, provides its R&D teams with a set of guidelines to help overcome project execution problems common to global teams. These include detailed role descriptions for all team members, clear rules on working across time zones, training on common cultural differences and ways of working, and budget for initial in-person meetings between all team members, as well as check-in meetings every two to three months.

Six Principles of Effective Global Talent Management

The Sloan Review article Six Principles of Effective Global Talent Management has some interesting information useful to all R&D managers:

“ONE OF THE BIGGEST CHALLENGES facing companies all over the world is building and sustaining a strong talent pipeline. “

The article has six recommendations for success:

Rather, we found that successful companies adhere to six key principles: (1) alignment with strategy, (2) internal consistency, (3) cultural embeddedness, (4) management involvement, (5) a balance of global and local needs and (6) employer branding through differentiation.

Here my takeaways:

Align Skill-set / Talent management with corporate strategy
Ensure talent management processes are consistent with each other and with corporate culture

There are also some interesting benchmarks:

General Electric’s “vitality curve,” which differentiates between the top 20%, the middle 70% and the bottom 10%.
Unilever, the Anglo-Dutch consumer products company, puts 15% of employees from each management level in its high-potential category each year, expecting that they will move to the next management level within five years.
Infosys limits the high-potential pool to less than 3% of the total work force
GE began targeting technology skills as a key development requirement during its annual organizational and individual review process, which GE calls Session C.
Oracle found that its objective goal-setting and performance appraisal process was no longer adequate. Management wanted to add some nonfinancial and behavior-based measures to encourage people to focus on team targets, leadership goals and governance.
IBM holds “ValuesJam” sessions that provide time to debate and consider the fundamentals of the values in an effort to make sure that they are not perceived as being imposed from the top!
BT, the British telecommunications giant, has implemented a performance management system that looks at employees on two dimensions: the extent to which they achieve their individual performance objectives, and the values and behaviors they displayed to deliver the results.
A McKinsey study found that more than 50% of CEOs, business unit leaders and HR executives interviewed believed that insular thinking and a lack of collaboration prevented their talent management programs from delivering business value.
P&G, was in one year able to attract about 600,000 applicants worldwide — of whom it hired about 2,700 — by emphasizing opportunities for long-term careers and promotion from within.

Is communication with supervisor more important than other team members?

The motivation and management of global or virtual R&D teams has been a constant theme on this blog . Since direct in-person communication is always diminished in virtual teams, I have been trying to understand the impact on communication between R&D teams and with managers on performance. I recently found an article in the R&D Management Journal describing The impact of team-member exchange, differentiation, team commitment, and knowledge sharing on R&D project team performance:

This paper integrates team-member exchange (TMX), affective commitment, and knowledge sharing to examine how work unit TMX influences employees’ R&D project team commitment and intention to share knowledge, and how team knowledge-sharing intention and TMX differentiation influences team performance.

It appears that Team Member Exchange (TMX) and Leader-Member Exchange (LMX) are well known concepts used to understand the impact of communications on team performance. A recent Ph.D. thesis from Hong Kong University (Thanks Google!) provides some background:

According to Seers A. (1989), TMX defined as “an individual’s perception of his or herexchange relationship with the peer group as a whole”. It was developed as one way to measure the level of exchange quality among coworkers. The concept of TMX has been applied to both traditional work groups as well as to self-managing teams

Similarly LMX is defined as:

Graen (1976) defined Leader-Member Exchange (LMX) as “an interpersonal exchange
relationships between a subordinate and his or her leader”. Through researching and studying over a quarter century, LMX has evolved into a general assessment of a work relationship between leader and member, measured by the extent to which there is a mutual sense of trust, loyalty, understanding, and support (Keup, L.C., 2000).

It appears that manager communication (LMX) only impacts job satisfaction. While enhanced team communication improves performance and job satisfaction. Hence R&D managers need to focus on deploying processes and tools that enhance communication between team members – especially virtual or global teams. Back to the R&D management journal paper: increased interactions and communications between team members enhances knowledge sharing, team commitment and team performance.

The results support the relationships between work unit TMX and employees’ intention to share knowledge and team commitment. In addition, the results show that work unit TMX increases intention to share knowledge through increasing group members’ team commitment. At the group level, the results support the relationships between team knowledge-sharing intention and team performance. The results also show that TMX differentiation moderates the relationship between work unit TMX and team performance. That is, greater work unit TMX is more likely to achieve higher team performance in a team with low TMX differentiation as opposed to a team with high TMX differentiation.

Why Stock Options Lead to More Risk Taking

We have recently discussed some interesting research on the use of incentives to drive R&D performance. We learned that incentive bonus plans tend to make executives modify goals to ensure incentives are obtained. We also learned that stock options are not actually seen as performance drivers but gifts from the company. Financial incentives themselves have been seen as not very effective towards driving true performance. Now there is one more piece of the puzzle from Knowledge@Wharton (The Making of a Daredevil CEO: Why Stock Options Lead to More Risk Taking):

The research is laid out in a new paper, ‘CEO Compensation and Corporate Risk Taking: Evidence from a Natural Experiment,’ by Gormley, David Matsa, a professor at Northwestern University’s Kellogg School of Management, and Todd Milbourn, a professor at Olin Business School at Washington University in St. Louis. ‘Options do have an effect on risk taking,’ Gormley says. ‘That is something that should be factored into compensation structure by boards of directors.’

As we have discussed earlier, stock options are increasingly used as part of the compensation package:

Stock options are a critical element of CEO compensation — making up one quarter of total pay for executives these days. But what does that mean for the risk profiles of the companies those CEOs lead?

The problem is that stock options only work in one way – towards the upside. If the stock price falls below the option value, they are worth zero (not negative).

At the heart of that question are two opposing forces: There is a risk-tempering aspect to options, because when those options are “in the money” — meaning the exercise price is less than the current market price — the value of those options moves in line with the stock price. That tends to dampen risk taking because CEOs want to preserve the value of those options.
At the same time, however, the downside of risk taking is limited because once the options are worth zero, they do not decline further in value if the stock price falls. And that limited downside increases the tendency to take on risk.

In summary use straight equity instead of options to moderate risk taking :

Research has shown that senior executives at financial firms have a large part of their compensation in the form of restricted stock — securities that, like straight equity, tend to reduce risk taking. But at the lower levels of those firms — areas like sales and trading — a large chunk of compensation is tied to bonus pools. Like options, those bonus pools have a large upside and limited downside. After all, once the pool is worth zero, managers have little to lose. That sort of compensation does, in fact, encourage risk taking, Gormley notes.

I am getting more and more convinced that the best approach is to measure risk taking and reward it using concrete metrics instead of using indirect tools such as options…

The Collaborative Organization: How to Make Employee Networks Really Work

I normally like articles in the MIT Sloan Management Review. Here is an exception – at least as far as R&D management is concerned – The Collaborative Organization: How to Make Employee Networks Really Work. However, I think it teaches us a few things anyway. The overall proposition is quite good – collaboration between employees is good for innovation:

The traditional methods for driving operational excellence in global organizations are not enough. The most effective organizations make smart use of employee networks to reduce costs, improve efficiency and spur innovation.

We have learned that project networks that leverage informal networks between employees are beneficial to productivity. We have also learned that there are many barriers to R&D productivity originating from networks and connections between R&D employees. These are especially important as R&D teams becomes increasingly multi-organizational and virtual. However, the article seems to zero in on network analysis as a way to improve collaboration:

Executives should analyze employee collaboration networks to discover how high-performing individuals and teams connect. Networks should be designed to optimize the flow of good ideas across function, distance and technical specialty. Network analysis can show where too much connectivity slows decision making.

I have nothing against network analysis. However there are many lower hanging fruits to boost R&D productivity and innovation. Network analysis is at best a snapshot in time. R&D networks are built over long term. Even if one can decipher networks across multi-location R&D teams, how does one change them? Force R&D employees to work with new people? What do you think…

How to Evaluate a Training Program

Training is a great way to improve the performance of R&D teams. However, the value delivered by training remains quite hard to measure. We have discussed some approaches to rigorously explore the value delivered by training programs. The Great Leadership blog has a useful checklist on how to evaluate the success of training programs using web-based surveys (How to Evaluate a Training Program):

Since the dawn of time, when early trainers were training their clan members how to improve their hunting and gathering skills, training organizations have struggled with how to measure the impact of their training programs.

Here are my takeaways:

Use the same web-based survey platform to evaluate all training courses
Ask questions about:

Course logistics (instructor, food, venue, etc);
Course material and learning
Course value and business results: Ask participants about the impact of training on concrete business results such as time-to-market, margins, cycle time, costs, etc

Ensure questions are consistent across all courses so the results can be aggregated
Administer survey immediately after the class is complete (but not in-class because people tend to feel pressure from trainers being present. Also, survey should be administered by someone other than the trainer to remove biases)
Administer survey section 4 90 days after the training to measure actual value delivered
Ask managers to validate section 4 results (through the same survey).