Management 2.0–new learning requirements

Learning – requirement or a pre-requisite?

Yes, this is the right place. The notes from the May discussion on  Management 2.0  are indeed here. In my work as an independent strategy consultant, my first rule is to listen and observe.  I need to transform what I’m being told and reconcile it with what I’m observing.  The norms or environmental conditions within an organization often give the first clues about what holds them back.  It’s rare that I meet people within the organization who haven’t figured out what’s wrong, or maybe even what needs to be done.  Often the monthly strategy discussions take o the same paradox.  The articles are sensible or seem to suggest the obvious but doing is much harder than it looks.

The process of writing up the notes from the monthly strategy discussion struck me as a classic exercise in management 1.0. The summary of what happened, the points discussed, conclusions reached and the infamous next steps are generally recorded and distributed. The minutes function primarily to keep everyone’s focus on the same play book, and put into wider distribution clear summaries of collective thinking. Given the strategic management practices and issues group discussion’s intention, I’m skeptical that collective thinking is the sensible approach.  

As the frequent facilitator of the discussion, I seek to elicit deeper connections to the articles.  Volunteering to  simultaneously take and write-up the discussion is an interesting challenge. So I’ve opted to skip the  loyal regurgitation of the bulk or the gist of the ideas that flow. Besides, it’s  impossible to capture the real flow of ideas, as they filter though my own thoughts and conceptions of the material and equally impossible to note comment and the questioning , outrage, delight or even surety of a comment’s inflection. In blogging, the scribbled notes come to life but also unconsciously reconnect the circling back conversation in a different sequence. For example, when the conversation on one sub topic takes a twist only to later come back to that sub topic, I naturally try to connect the book-ended remarks and extract the distraction.

 Why does all this process talk matter? It relates to how we, as humans naturally work.  Reflection, when actively invoked, naturally evokes new thoughts and new learning. These blog posts try to share the self-reported learning captured in my notes, but they also do something else. They are my attempt to capture the continued learning on the topic that happens in my ongoing interactions. In these posts I take the opportunity to try to share my new understanding of the topic, or insights into a given position’s advocacy.  For example, this past month I wonder why a group, primarily comprising mid to late-career Chicago trained MBAs, find solace in the verity of finance while the idea of management 2.0 remains a bit fuzzy?

Thoughts on Management 2.0

That said, time to share the discussion notes that I have indeed struggled to bring alive. (Find additional learning  in the next post  entitled Management 2.0–can you shift)
Notes or recorded observations and reactions from discussion participants to the articles and topic entitled Management 2.0.

Adaptable , innovation style cultures, aka management 2.0 have long been advocated and these principles characterized by three key academics who study Leadership*. Largely prescriptive,  discussion participants had no question that managers should follow this advice. The paradox however lies in reconciling a culture bent on innovation with obligations to support the existing business model—, the one generating returns and is the source, if not majority basis of compensation. In a lean environment, it becomes more challenging to find the time and energy to innovate. Cost cutting for many firms in the recent downturn led to the innovation group being sacked and outsourced. In some cases, operating strategy groups followed the same route.

Regardless of whether the firm chooses situational strategy or an adaptive strategy, an inherent conflict in the self-preservation of the organization naturally ensues. The management philosophy and tone of the CEO generally dictates the culture but does not necessarily lead to pervasive behavior. After all if the average lifespan of a CEO is a few years, it’s hard for the organization to have fully integrated a particular CEO’s philosophy within their culture.

Effectively communicating  financial goals makes it easier to balance the respective balcony and dance floor perspectives. Numbers make things tangible, and connect actions to overall changes in the balance sheet. Connecting people, their responsibilities as well as opportunities, to the components that deliver EBITDA the better chance at achieving overall performance

Adaptive management means adapting your customers too, helping them to understand the changes being tried and the positive impact on them. In a manufacturing firm, making changes that tweak the system or fine tune the results are easier than in a service firm where the resources are primarily labor

Management 2.0 conceptually still a little fuzzy. Sounds like and may even look a little like an innovation culture, but is it? Can one create a culture that values innovation and risk-taking that doesn’t cost you your career?

Easy to understand preponderance of management 2.0 in small start-up companies. Being nimble, fewer layers of management also mean fewer chances to mix-up signals. Turnaround specialists typically find that small companies have a larger disconnect with finance.. letting ideas get ahead of prudent financial management.   All investments need to generate payback and understanding the firm’s cash flow parameters is critical.

Finance often has a second role, facilitating a strategy’s execution.  If day-to-day operations and management face the disconnect between ideas and cashflow, where can they get the clear support needed?  Is it only executive management’s responsibility to reconcile the balcony perspectives and incentives around a culture of innovation and the realities of the positions of dance floor management or dancer  struggling to meet a variety of standards and goals? Understanding the timing and relationship of unbounded customer service handle times with future customer receipts due to customer satisfaction is challenging for everyone. In a small business, there’s more transparency, as in everyone knows the good customers by name.
Measured latitude is the language used by 3M’s historic approach that requires everyone to spend and account for a small proportion of their time to learn something new. Rather than hiring clones, even in the face of the current environment where fewer resources do more, adaptive organizations  hire alternative experiences to broaden their internal learning. Innovation, when under-financed, can bring a well-managed company to its knees; EBITDA is real and important contributor to your business survival.

Inspiration doesn’t happen predictably on a timeline ; but the culture 3M instilled ties innovation to compensation.  Don’t underestimate the power of a good story to inspire and in grain experimental cultures.. The failed glue  gave rise to the Post-It Note encourages people to experiment,  and learn from failures. It also helps get everyone from top to bottom in an organization to pull the same way.

Getting the commitment from the top down, in larger organizations differentiate successful transmission of this innovation or looser adaptive culture that works well in smaller organizations. A CEO’s daily voice mail is inspiring, but a collaborative commitment in which staff concerns and worries are both heard and effort concerted  to work them through goes that much farther. . This is the suggestion that Ron Heifetz describes in adaptive leadership.

Alternatively, an organization can step their way up to change by giving staff assignments outside their normal duty. Having the tools and putting out the thinking is not the same as the heavy workout of the issues or obstacles. How much do client comments impact an employee’s compensation? When training, the indirect rewards are insufficient, the short-term pressures means it may delay getting long-term results.In the end, management still has to be serious, committed and clearly express what results they want and when.
An organization’s culture bred on innovation are willing to experiment, routinely challenge norms, share knowledge and use measurement and scorecards to track progress.

The existence of an innovation culture, not clear evidence of management 2.0?

More learnings will follow, and I invite all readers to challenge those listed or add their own.  This is a great place to test and try out ideas.  I hope you will continue the conversation.

*If you are looking for the articles and references that were the basis of the May discussion see the next post for a complete listing and links.

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Changing Social Compact? Naa, just good sound long term strategic planning

On Shared ValueShared Value is neither new or an unusual a strategy as the media and popular press suggest.   Any company who has been deliberate and committed to strategic planning quickly discovers  the imperative  to invest  in their future and develop ancillary parts of their market. Deloitte’s global chairman and CEO-elect UK responded on the phenomenon in a letter to the editor of  the Economist that appeared in March.  (Note, our apologies for not noticing  and bringing it to discussant’s  attention earlier).  Deloitte’s position:

Society is more affected, for better or worse, by the core activity of a business than by its community investment projects, social initiatives and other peripheral activities…Good businesses recognise and understand the contribution they make, alongside government and non-governmental organisations, to economic, environmental and social progress. According to our analysis, over a fifth of Fortune Global 500 companies already have a clear, society-focused purpose underpinning their activities.

These views appear somewhat consistent to other reports such as the Global Reporting Initiative (see earlier post).  Questions circulating in the Friday discussion did not challenge the value of the activity.  Comments focused on complexities and organizational thinking that prevent more than a few companies from pursuing these strategies.

The search for Profits

Fundamentally, profitable growth comes from one of three sources:

1. Expanding your customer base–more customers

2.  Higher profits per customer–which means expanding the margin by either shrinking costs or raising prices; and

3. Increasing the number of things you sell, or sell the same things more often, or create more products to sell to existing customers-

Throughout history, the intersection of  supply and demand, creates value. Companies who effectively overcome logistics that separate the two, and with efficiency, naturally  benefit.  Business practices that optimize  costs, resource use or adopt solutions that minimize risk however,  are not always synonymous with ethical practices.  Add  cultural differences and attitudes into the wider system of decision variables  and it’s  easy to see why history is full of stories about companies who failed to share their economic benefits with local  workers or communities.

In 2011,  sustainability or persistent business operating practices depend on a wider decision frame that encompasses local good will and good behavior.  The repercussions of bad or exploitative behavior may upset the strongest of a company’s standing in the marketplace, especially because of the speed in which any number of stakeholders can usurp social media to exact revenge.

The global, wired world is only one reason we increasingly learn of companies behaving more responsibly globally. It turns out behaving responsibly is also cheaper.   Averting the damage, by doing a little more upfront, or taking on some upfront risk may in fact limit if not eliminate back-end risks. Perceptions are important to keep up, but equally important are relationships.

Numerous global companies seeking to expand their presence in alternative markets are finding NGOs reliable partners, thus earning the project the shared value label. Knowledge of local custom, culture and conditions, when integrated into investment decisions, mitigates possible failure and offers added security from future liabilities.

Is  it really a surprise to see corporations increasing their reliance on NGOs local knowledge to help penetrate new markets?  To the assembly of strategy minded Chicago Booth MBAs and professionals, leveraging ability to enter a market indicates a prudent well thought out, long-term strategic initiative.  The rising number and prominence of news  stories that expressed the value of pursuing long-term strategy initiatives, that was a surprise.  Maybe these are examples of capitalism at the extreme.  Is there anything inherently wrong with a company creating downstream demand for its products and services?   More cynically, the stories and highlighted attention around shared value merely reaffirms the reality that there’s no pure charity going on.  Both business and NGOs are no longer distracted by taking adversarial positions, and instead both are more productively realizing their aims.

In modern times, new market expansions up the stakes considerably, made evident by the lessons from earlier experiences.  Recall the disaster in Bhopal.  This accident continues to haunt DOW, no matter how much money, support or distance they attempt to create.  The  clear lesson for business today, is that its best to know your way around the market where you are trying to set up a toehold.  The easy pickings in most market are gone or governments and other organizations more hesitant to roll out the red carpet.  The increased risk  of crossing cultural divides is something that NGOs have felt more viscerally, as when their failure to deliver puts peoples’s lives at risk, not just the loss of investment capital.

What does maximizing value look like? 

Value , as earlier stated is not just a measure of profit; and as such doing good to more of your stakeholders, regardless of your tax or operating mission, may indeed create value.  It’s simple to believe that shareholders are only interested in returns near or short term.  Ample evidence exists that investors consistently pay more for companies who derive direct and indirect value from multiple sources.  [Anyone have a reference or citation for this? ]

Another cautionary tale

Nicholas Negroponte’s vision for accelerating learning in impoverished communities, widely shared with other luminaries in technology has fallen short of collective expectations.    In establishing the onelaptop per child foundation, the mission was simply

  to empower the world’s poorest children through education.

One laptop in Africa

Nobility aside, ample data and analysis correlates education level with higher income making this a logical path to empowerment, sufficiency, economic independence etc.  The founders, rather than deal with the complex system of resource coördination in locations short on infrastructure,  seized upon the silver bullet in the form of a simple laptop. The private foundation and their very sophisticated, resourceful founders and network  encountered more than one bump in their path to distributing the 1 million laptops across the globe.  A recent evaluation  contrasted  reality with the dream by acknowledging the  foundation “failed to achieve its ambitious goals when it met its intended market.”

In short, the answer that emerges when sitting in a resource rich environment failed to fully consider the ancillary factors that were key to realizing the project.  With the best of human intuitions and insights, they  tried to think of everything. The impressive self-contained laptop with software especially designed  toward natural learning, included a crank battery and internet access via satellite.  But the technology was simply too big a leap for populations who struggle to support basic necessities for their survival.  Click here for  More of the story. 

We welcome other thoughts or comments, and invite you to share them here.

Changing Social Compact–shifts in stakeholder accountability

Stakeholders for some time have been raising the bar for accountability on a variety of non-financial indicators.  In partnership with the UNEP (United Nations Environment Program) Finance Initiative and the UN Global Compact and investor initiative created the Principles for Responsible Investment (PRI).  The 2010 annual report (for FY April 2009-March 2010) noted that in just under four years, approximately 22 $trillion US of assets globally have signed on to the PRI, or 10% of total global capital markets. They count over 800 signatories and seeing concrete progress in how mainstream investors integrate ESG, Environmental Social Governance into their investment practices.

In case you weren’t aware of how significant this practice is, I happened to pick up a Tweet from a recent global conference hosted by Global Reporting Initiative (GRI). I thought it worth sharing a few of my notes.

Who and What is GRI? 
Global Reporting Initiative

Vision: A sustainably global economy where organizations manage their economic,environmental, social and governance performance and impacts responsibly and report transparently.

Mission: To make sustainability reporting standard practice by providing guidance and support to organizations. © GRI 2011

GRI provides the world’s most comprehensive framework for producing sustainability reports.  These guidelines offer standardized assessment and comparability of performance and disclosure that is similar to financial reporting.  The latest annual report was issued on the 11th of May 2011; however the accumulation of  company stats reported Calendar year 2010.  Only 16% (180) of US companies  are being assured by GRI guidelines, though they produce more sustainability reports than any other country. (this is also an increase by 28% up from 140 in 2009).

Based on Sector, Financial services, Energy and Food and Beverage product companies top the list of reporting companies.

Interestingly,though more current GRI data is available,  the last year KPMG did a survey of KPMG Fortune 250 Survey October 2008 , In 2008

      •  79% (197) of Global Fortune 250 companies now release CR data, up from 62% in 2007
      •  Doubled since 2005 – up from 37% p
      •  Increasingly driven by economic concerns
      •  74% of top 100 US companies published corporate responsibility (CR) information in 2008 either as part of their annual financial report or as a separate document.  The Reasons cited:
        •  70% cited ethical considerations as primary driver for CR disclosures
        •  50% cited economic concerns as the leading reason

In 2008,   77% of G250 (Global Fortune 250)   and  69% of N100 (100 largest companies by revenue) in 22 countries used GRI.

Alternatively, BSR -Business for Social Responsibility , works with its global network of 250 member companies to develop sustainable business strategies and solutions including cross-sector collaborations.

Many US companies are obviously involved and engaged in a variety of Corporate Social Responsible (CSR) initiatives that are at this stage primarily voluntary.  BSR, a member organization, provides research and support and comparative reporting to its members, but the data is not available publicly.

Additional organizations, such as the World Business council for sustainable Development , a CEO-led global association of 200 companies is another sharing platform focused primarily on environmental issues.

American Companies, however continue to show a reticence to engage at the rigor of PRI, or GRI reporting and have the data checked by a third party.  At least that was among the recent sentiments shared by GRI’s Focal Point USA Director, Mike Wallace 

In April the monthly Booth alum discussion considered how these ideas play out, who benefits and what might be the risks of engaging in going down this path.  We’d love to get further feedback and reaction.  Any thoughts?  or further data are welcome!