Corporations have historically developed according to the logic of their products. Today, however, they are increasingly having to operate according to the logic of their customers, which is quite different. This upheaval impacts the entire corporate social dynamics, ways of working and value creation processes. Organisations have to develop radically new internal cooperation patterns. In learning to develop such cooperation patterns, companies discover an untapped field of growth energy.
Customer First and Corporate Tensions. When the problem was to manage mass production, it was logical for companies to organise themselves around production constraints, i.e. around the sequencing of the various stages needed to work a product out. Thus, if car manufacturers' organisation charts featured design departments, engineering departments, assembly lines and sales departments, it was because one has to design products before engineering, assembling and selling them. If airline companies had ground operations departments on the one hand, and flight operations on the other, it is because planes are first on the ground, and then in the sky. The organisational structuring was nothing more than a carbon-copy of the succession of specific constraints met by the producer. However, the more a system organises itself around its own constraints, the more it is up to others - in this instance, the customers - to adapt and make do with it. It is up to the passenger to supply the “seam” between ground and flight services by queuing for the shuttle bus after check-in. It is up to the car owner to make do with months of waiting before getting his new car, and to accept the defects which arise from disjointed work amongst designers, engineers and manufacturers.
Unless, of course, the customer has a choice to turn towards less demanding competing alternatives.
And, indeed, today's customer has more and more choices. The whole problem has changed. It is no longer the availability of the product that is problematic, it is the availability of the customer. The dominant uncertainty has shifted. However, if the solution to the problem has changed hands, it follows that power balances are being reversed in the exchange relationship: the one in a position to have their own constraints prevail becomes the customer. This situation does not eliminate the operating constraints which still pervade a company. What is removed, however, is the company's freedom to take a direct leap from its constraints to its organisation principle, thereby enjoying a comfort that customers would bear the cost of. This is where resides the decisive upheaval for the whole social fabric of organisations. A human system functions in a radically different way, depending on whether it can organise itself around, and give prevalence to, its own constraints, or whether it has to start from others'.
In concrete terms, the change boils down to this: the more an organisation attempts to take into account its customers' constraints, the more it undergoes new internal tensions. On the one hand, the organisation experience a greater need for joint decisions between functions. The customer's logic is not sliceable. The more compelling the customer's logic, the more the various internal segments must act in a coordinated fashion. But, simultaneously, the human system at work experiences an increase in goals differences among participants. Demanding customer requirements result in cost pressures and increased internal competition for resources. The more resources within a system are rationed, the more the solutions of one participant may result in problems for another: in the allocation of staff, of investments and of lead times. Poorly managed, smothered with superficial “customer is king” slogans and abstract debates on structures (horizontal, flat, etc.), these tensions weaken an organisation instead of stimulating it.
The Cooperation Imperative. The only way to manage such tensions is to go beyond the apparent contradiction they pose: by learning to cooperate, which means, precisely, to act together even though spontaneous agreement is unlikely. A constant observation is that every time people fail to cooperate, it results in additional resources requirements. However, nothing has prepared organisations to such learning. The very historic principle of organising people around a succession of tasks says the contrary: if everyone, in his or her place, does what he or she has to do, there is no need for cooperation. Accordingly, it is not unusual for organizations to react to such tensions along the classical approach: instead of learning how to cooperate, with more face-to-face situations and less interfaces, management strive to refine jobs descriptions; tasks definitions are being reinforced by new norms which consecrate the necessary and sufficient content of each “silo”. The organisation produces regulation, “client-supplier” internal contracts, but it does not improve integration. At the same time, due to cost pressures, resources are being cut down in each “silo”. However, if the functioning mode remains constant and the level of cooperation is unchanged, any reduction of resources can only degrade the results achieved. And, the more the results deteriorate, the more the resources are being trimmed back. So on and so forth, until a crisis point is reached.
Learning how to Cooperate. An organisation's ability to produce cooperation among its members, its functions and its expertise domains, has become a critical competence. How can a human system learn how to cooperate? Firstly, by recognising that cooperation cannot be decreed. Secondly, by observing that cooperation is not, on the other hand, just a matter of people's psychology and getting on well. A human system's aptitude to function in a more integrated way does not boil down to good interpersonal relationships. Cooperation is about reconciling conflicting constraints, not personalities. In fact, to learn cooperation,it is more efficient to consider that people act rationally, i.e. that their behaviours are adaptive, “strategic”, responses to the concrete problems they are confronted to, given the resources and constraints they face. Resources and constraints include competencies, operating procedures, rules, performance criteria, structures, etc. And it is only if cooperating turns out to be a rational strategy for each player, i.e. a solution to his or her problems, that people will cooperate. If, in spite of incantations and heartfelt appeals to team spirit to overcome “shared challenges”, playing in a more collective way never pays off, the functioning will remain compartmentalised.
Which Levers to Improve Cooperation? Responses are specific to each company. However, sociological analysis of organisations helps identify a constant factor: cooperations are all the stronger as there are room for manoeuvre and possibilities of influence between players. In that sense, power distribution is a key variable of action for more integrative processes to emerge in an organisation. Indeed, airlines really started to work in a more transversal mode when power stopped being concentrated on technical functions. Other strong players stood up (that were in charge of marketing, yield management, etc.) with enough weight not only to become unavoidable, but also to take the risk of moving out of insulation. Only those players which can act on a problem critical for others, i.e. which control a pertinent uncertainty (thanks to their competencies, information, possible initiative taking, etc.) will find room in the exchange relationship which underlies cooperation. And it is not because a function, or any other category of people, have always been looked down to and kept aside that it will necessarily want to engage in the new “hand-in-hand company project” and jump in the cooperation bandwagon: it takes a minimum of good cards to take the risk of playing in a more open way.
Growth and success suppose to identify ambitious targets and to mobilise every individual energy to achieve them. Cooperation is at the heart of such mobilisation. Senior executives have a fundamental role to play in organising the “good games”, i.e. those which lead to efficient cooperations. Sociological analysis, if totally integrated into the corporation's overall strategic approach, can help them formulate the appropriate choices, both in day-to-day operations and in large scale change programs. It allows for identifying and understanding factors of resistance to change and, at the same time, to discover solutions to overcome these obstacles in order to mobilise energies towards corporate objectives.
Copyright: Yves Morieux, 2009
Monday 15 March 2010
What is compensation compensating for?
The financial crisis triggered an important and often impassioned debate over compensation, punctuated with even violent protest. Do we, though, clearly see what lies behind compensation and what compensation means about the relation between individuals and their company?
Drop in engagement and satisfaction at work
Surveys indicate a drop in engagement and a growing dissatisfaction at work. This trend dates back at least twenty years. According to Towers Perrin, only 11% to 23% of employees felt engaged at work in 2004 in the largest Western European countries. In 2001, an Ifop-Gallup survey had to resort to a new concept – "active disengagement" – in order to classify the 28% of the French who may go as far as to act against their company’s interests. According to the Conference Board, the percentage of Americans who declared themselves satisfied at work has gone from 61% in 1987 to under 50% in 2007. The percentage of American executives who say they are excited about their job has fallen from 65% to 55% in eight years.
Trying to compensate for the hardly compensable
What must an organization do when it can not produce the engagement it needs? It must compensate by purchasing engagement, through extra-incentives such as bonuses and perks of all sorts. The going rate then rises with the scarcity of capabilities. Is the crux of the problem in the amount thus reached, in its potentially public funding, or in the cause? The cause is the company’s inability to generate the engagement and loyalty it needs without top-up incentives. The moralizing criticism is currently fuelled by the distribution of such incentives in poorly performing companies, sometimes in the very units responsible for corporate losses. But this criticism further conceals the real issue. The incentives in question were designed not as reward for past performance, but to procure future engagement. Such incentives were not the retrospective expression of gratitude, but the price settled to secure prospective attachment.
Poor social contract
The social contract is the unwritten but compelling reciprocal commitment between the firm and the individual. Under the old social contract, individuals provided loyalty and engagement and in return the corporation protected their job. This contract disappeared with the pressure surge of hyper-competition. Yet, companies require a level of engagement that goes well beyond just fulfilling the rules. Rule fulfillment is less and less sufficient to confront the increasingly complex problems faced at all company levels. Hence the slogans on collective mobilization, identifying with the company's mission, and the importance of a shared vision. Yet, when things go wrong, one is invited to go share elsewhere.
A substitute social contract has then emerged: performance for employability. The individual commits to developing or implementing high performance strategies, and in return the corporation maintains their employability on the job market by developing their skills. This is often a poor social contract, so contributing to disengagement. Its main weakness is the inability of companies to maintain employability due to management roles that are too disconnected from people development. Extra-incentives have a twofold objective that they imperfectly fulfil: on a day-to-day basis, to buy the engagement that the organization does not intrinsically generate; over time, to make up – “compensate” – for a poor substitute social contract.
Tackling the real issue
In a nutshell, the problem is the contradiction between the organization’s growing need for the engagement of its members, and its frequent incapacity to obtain such engagement without over-promising. How can a company produce, in a sustainable way, through its very operations and organization, the engagement it needs?
Firstly, by keeping a firm hand on its growth trajectory.It is elusive to decree growth. But to be led by growth is hardly preferable. The more growth is uncontrolled, the greater the risk of ups and downs.
Secondly, by developing productivity as one of the most sustainable protections against competition. The issue is not so much individual productivity. The individual is often the bottleneck of productivity improvement, having already been put under maximum tension through the progress of flexibility and the elimination of dead times. The new front is collective productivity, i.e. cooperation. This requires going beyond all the incentive schemes based on individual performance metrics. Cooperation, one of the most valuable behaviors, cannot be measured.
Thirdly, by transforming the role of management. When managers are distanced from operations by complicated and over-stratified structures, when they spend 40% of their time writing reports, and then 30% in coordination meetings, they cannot perform their real work, notably developing people. Management has become abstract, and abstracted from its real job. Management must be provided with the means to do its concrete work: direct knowledge of operations rather than the surface of KPI-monitoring to which it is confined; real power rather than virtual or dotted-line org charts; and, instead of the sophisticated gloss over "leadership styles", a leadership rooted in incarnated values.
Copyright: Yves Morieux, 2009
Drop in engagement and satisfaction at work
Surveys indicate a drop in engagement and a growing dissatisfaction at work. This trend dates back at least twenty years. According to Towers Perrin, only 11% to 23% of employees felt engaged at work in 2004 in the largest Western European countries. In 2001, an Ifop-Gallup survey had to resort to a new concept – "active disengagement" – in order to classify the 28% of the French who may go as far as to act against their company’s interests. According to the Conference Board, the percentage of Americans who declared themselves satisfied at work has gone from 61% in 1987 to under 50% in 2007. The percentage of American executives who say they are excited about their job has fallen from 65% to 55% in eight years.
Trying to compensate for the hardly compensable
What must an organization do when it can not produce the engagement it needs? It must compensate by purchasing engagement, through extra-incentives such as bonuses and perks of all sorts. The going rate then rises with the scarcity of capabilities. Is the crux of the problem in the amount thus reached, in its potentially public funding, or in the cause? The cause is the company’s inability to generate the engagement and loyalty it needs without top-up incentives. The moralizing criticism is currently fuelled by the distribution of such incentives in poorly performing companies, sometimes in the very units responsible for corporate losses. But this criticism further conceals the real issue. The incentives in question were designed not as reward for past performance, but to procure future engagement. Such incentives were not the retrospective expression of gratitude, but the price settled to secure prospective attachment.
Poor social contract
The social contract is the unwritten but compelling reciprocal commitment between the firm and the individual. Under the old social contract, individuals provided loyalty and engagement and in return the corporation protected their job. This contract disappeared with the pressure surge of hyper-competition. Yet, companies require a level of engagement that goes well beyond just fulfilling the rules. Rule fulfillment is less and less sufficient to confront the increasingly complex problems faced at all company levels. Hence the slogans on collective mobilization, identifying with the company's mission, and the importance of a shared vision. Yet, when things go wrong, one is invited to go share elsewhere.
A substitute social contract has then emerged: performance for employability. The individual commits to developing or implementing high performance strategies, and in return the corporation maintains their employability on the job market by developing their skills. This is often a poor social contract, so contributing to disengagement. Its main weakness is the inability of companies to maintain employability due to management roles that are too disconnected from people development. Extra-incentives have a twofold objective that they imperfectly fulfil: on a day-to-day basis, to buy the engagement that the organization does not intrinsically generate; over time, to make up – “compensate” – for a poor substitute social contract.
Tackling the real issue
In a nutshell, the problem is the contradiction between the organization’s growing need for the engagement of its members, and its frequent incapacity to obtain such engagement without over-promising. How can a company produce, in a sustainable way, through its very operations and organization, the engagement it needs?
Firstly, by keeping a firm hand on its growth trajectory.It is elusive to decree growth. But to be led by growth is hardly preferable. The more growth is uncontrolled, the greater the risk of ups and downs.
Secondly, by developing productivity as one of the most sustainable protections against competition. The issue is not so much individual productivity. The individual is often the bottleneck of productivity improvement, having already been put under maximum tension through the progress of flexibility and the elimination of dead times. The new front is collective productivity, i.e. cooperation. This requires going beyond all the incentive schemes based on individual performance metrics. Cooperation, one of the most valuable behaviors, cannot be measured.
Thirdly, by transforming the role of management. When managers are distanced from operations by complicated and over-stratified structures, when they spend 40% of their time writing reports, and then 30% in coordination meetings, they cannot perform their real work, notably developing people. Management has become abstract, and abstracted from its real job. Management must be provided with the means to do its concrete work: direct knowledge of operations rather than the surface of KPI-monitoring to which it is confined; real power rather than virtual or dotted-line org charts; and, instead of the sophisticated gloss over "leadership styles", a leadership rooted in incarnated values.
Copyright: Yves Morieux, 2009
Repowering the Matrix
Matrix organizations can help companies outperform their competitors. But they are often hard to run, and attempts to fix them frequently fail. At the root of these problems - which relate less to the structure of the matrix itself and more to the way the parts work together - is how we think about power.
Here is what happens: one dimension of the matrix (projects, functions, geographic units, or customer segments, for example) has too much or too little power, so we reallocate it. Or we change the coordination mechanisms (such as dual reporting lines, hierarchical links with informal overlays, or solid versus dotted lines). People caught in the middle of these matrices end up getting lost, and performance drops.
For example, many organizations initially fail to give enough power to project managers. Eventually they recognize their error, so they "empower" these managers by giving them authority, in whole or in part, to evaluate team members and determine promotions, raises, and other rewards. But their new power comes at the expense of line managers, who now control only a part, or none, of the team's rewards. Because the power of line managers is only a fraction if what it was, they now achieve only a fraction of what they used to accomplish in mobilising the team toward line objectives (innovation and deploying new standards, for instance). The company wins on one front (the short-term horizon of ongoing projects), only to lose on another (the longer term).
In this scenario, the shifting of power is a zero-sum game. But that dynamic of intrinsically contradicts the intent of matrix design: channeling the behaviour of employees along multiple dimensions that reflect different performance requirements. To achieve that end, each dimension needs power - in the form of motivating elements, constraints, or other types of influence - to make people do what they would not do spontaneously. When we add new dimensions to the structure, we need more overall power. The inability to move from a zero-sum game to a positive-sum game by increasing the pool of power is at the heart of malfunctioning matrix organizations.
The Origin of Power
Where does power come from? Power is based on the ability of one party to influence those things (the stakes) that matter to other parties to a degree that causes those other parties to eventually do something they would not have done without the first party's actual or implied intervention. Despite popular belief, power is not particularly related to an imbalance of information available to the parties. Instead, the asymmetry relates to the terms of exchange in a relationship: the reciprocal possibilities of action. The imbalance - thus the power - issues from A's potential to make a greater difference regarding stakes that matter to B than the reverse. On another issue or as stakes change, B may have power over A. Power is not an attribute of people. Rather, it stems from a relationship tied to a situation.
To increase the total amount of power available in an organization, management must introduce at least one new stake that matters to people and to the company. Those who can influence that stake will get the power they need, without taking power away from others. In one case, the added stake was competence development, which became a new condition for promotion. Until then, promotions were based mainly on employees' contributions to projects. Line managers became responsible for assessing engineers on a variety of competence criteria, thus gaining more power, while project managers retained their power to assess and reward teams on project performance.
Empowering one dimension without diminishing others empowers the organization as a whole. Think of it as increasing the number of cards in a game: you then increase the possibility of exchanges. Each dimension can now have the critical mass of cards needed to risk playing in an open way: to take initiatives with others, to accept transparency about performance, or to question one's own choices to benefit the common good. In other words, each dimension can actively participate in the cooperative mix that is the lifeblood of matrix organizations.
Misconceptions About the Matrix
What often gets in the way of making the matrix work is a series of misconceptions.
Misconception 1: the matrix must be balanced so that each dimension has the same weight. Strict equality is not the key. What is important is to avoid a concentration of power that causes dominated dimensions to withdraw from the cooperative effort as they realize that they always lose out in the trade offs inherent to the interdependencies of a matrix. The issue is not one of balance but of enriching the game of adding stakes (the cards in the cooperation game) to increase the possibilities of exchange.
Misconception 2: the matrix approach doesn't work, because people can be held accountable only for results that depend on factors under their sole authority (such as teams and equipment). The problem with this principle, as well as with its complement about the importance of a single boss, is that is is less and less applicable, given that the interdependencies that most organizations must now master in order to be competitive. If it were applied to distribution, the only result for which supermarket managers could be accountable would be the cleanliness of their shops. Everything else, from the product mix to the IT-supported checkout process, depends substantially on others. The "single boss" and "accountability equates authority" principles make sense only when power is a zero-sum game. They do not apply when increasing the total amount of power allows each dimension to obtain from the others the cooperation it needs.
Misconception 3: The matrix needs "guardians" to serve as arbitrators among its dimensions. This approach results in over escalation- worse yet, an over escalation that delivers a weak punch. Real power, the kind needed to make other parties accept trade offs, is not an attribute one automatically inherits from a title or from a position in the hierarchy. Power is intransitive: just because A, the guardian, controls something important for B, and B for C, it does not necessarily follow that A controls something important for C. Which is why guardians are never found "high" enough, unless they are CEOs, who then become mired in making operational trade offs. The better practice is to avoid needing guardians as a compensatory mechanism by instead creating the conditions for cooperation among dimensions.
Misconception 4: What matters most is the clarity of rules and structure" The clarification of decision rights is indeed crucial for matrix organizations. Problems arise however when a company relies mainly on the formalization of rules and boxes to make the matrix work. That effort always results in anemic leadership. The reason is simple: power invariably requires some room to maneuver, some area for discretion. When there is a rule for everything, one depends on the rule, not on one's management. Then the only people who can make a difference - who have real power - are those who can change the rules. These are players at the top of an organization or collective bodies (unions, for instance) that are far from operations. An over reliance on formalization always results in a dependency that takes the form of an inverted hierarchy. Managers depend on teams to achieve their objectives, but teams do not depend on their managers. The consequences are counterproductive whenever field management is supposed to play a real role.
As companies become increasingly multidimensional or even network like, issues about power become even more pervasive, subtle, and critical than in the basic hardwired form of traditional vertical-and-horizontal matrices. Understanding and managing power are now at the heart of sound organization design.
Here is what happens: one dimension of the matrix (projects, functions, geographic units, or customer segments, for example) has too much or too little power, so we reallocate it. Or we change the coordination mechanisms (such as dual reporting lines, hierarchical links with informal overlays, or solid versus dotted lines). People caught in the middle of these matrices end up getting lost, and performance drops.
For example, many organizations initially fail to give enough power to project managers. Eventually they recognize their error, so they "empower" these managers by giving them authority, in whole or in part, to evaluate team members and determine promotions, raises, and other rewards. But their new power comes at the expense of line managers, who now control only a part, or none, of the team's rewards. Because the power of line managers is only a fraction if what it was, they now achieve only a fraction of what they used to accomplish in mobilising the team toward line objectives (innovation and deploying new standards, for instance). The company wins on one front (the short-term horizon of ongoing projects), only to lose on another (the longer term).
In this scenario, the shifting of power is a zero-sum game. But that dynamic of intrinsically contradicts the intent of matrix design: channeling the behaviour of employees along multiple dimensions that reflect different performance requirements. To achieve that end, each dimension needs power - in the form of motivating elements, constraints, or other types of influence - to make people do what they would not do spontaneously. When we add new dimensions to the structure, we need more overall power. The inability to move from a zero-sum game to a positive-sum game by increasing the pool of power is at the heart of malfunctioning matrix organizations.
The Origin of Power
Where does power come from? Power is based on the ability of one party to influence those things (the stakes) that matter to other parties to a degree that causes those other parties to eventually do something they would not have done without the first party's actual or implied intervention. Despite popular belief, power is not particularly related to an imbalance of information available to the parties. Instead, the asymmetry relates to the terms of exchange in a relationship: the reciprocal possibilities of action. The imbalance - thus the power - issues from A's potential to make a greater difference regarding stakes that matter to B than the reverse. On another issue or as stakes change, B may have power over A. Power is not an attribute of people. Rather, it stems from a relationship tied to a situation.
To increase the total amount of power available in an organization, management must introduce at least one new stake that matters to people and to the company. Those who can influence that stake will get the power they need, without taking power away from others. In one case, the added stake was competence development, which became a new condition for promotion. Until then, promotions were based mainly on employees' contributions to projects. Line managers became responsible for assessing engineers on a variety of competence criteria, thus gaining more power, while project managers retained their power to assess and reward teams on project performance.
Empowering one dimension without diminishing others empowers the organization as a whole. Think of it as increasing the number of cards in a game: you then increase the possibility of exchanges. Each dimension can now have the critical mass of cards needed to risk playing in an open way: to take initiatives with others, to accept transparency about performance, or to question one's own choices to benefit the common good. In other words, each dimension can actively participate in the cooperative mix that is the lifeblood of matrix organizations.
Misconceptions About the Matrix
What often gets in the way of making the matrix work is a series of misconceptions.
Misconception 1: the matrix must be balanced so that each dimension has the same weight. Strict equality is not the key. What is important is to avoid a concentration of power that causes dominated dimensions to withdraw from the cooperative effort as they realize that they always lose out in the trade offs inherent to the interdependencies of a matrix. The issue is not one of balance but of enriching the game of adding stakes (the cards in the cooperation game) to increase the possibilities of exchange.
Misconception 2: the matrix approach doesn't work, because people can be held accountable only for results that depend on factors under their sole authority (such as teams and equipment). The problem with this principle, as well as with its complement about the importance of a single boss, is that is is less and less applicable, given that the interdependencies that most organizations must now master in order to be competitive. If it were applied to distribution, the only result for which supermarket managers could be accountable would be the cleanliness of their shops. Everything else, from the product mix to the IT-supported checkout process, depends substantially on others. The "single boss" and "accountability equates authority" principles make sense only when power is a zero-sum game. They do not apply when increasing the total amount of power allows each dimension to obtain from the others the cooperation it needs.
Misconception 3: The matrix needs "guardians" to serve as arbitrators among its dimensions. This approach results in over escalation- worse yet, an over escalation that delivers a weak punch. Real power, the kind needed to make other parties accept trade offs, is not an attribute one automatically inherits from a title or from a position in the hierarchy. Power is intransitive: just because A, the guardian, controls something important for B, and B for C, it does not necessarily follow that A controls something important for C. Which is why guardians are never found "high" enough, unless they are CEOs, who then become mired in making operational trade offs. The better practice is to avoid needing guardians as a compensatory mechanism by instead creating the conditions for cooperation among dimensions.
Misconception 4: What matters most is the clarity of rules and structure" The clarification of decision rights is indeed crucial for matrix organizations. Problems arise however when a company relies mainly on the formalization of rules and boxes to make the matrix work. That effort always results in anemic leadership. The reason is simple: power invariably requires some room to maneuver, some area for discretion. When there is a rule for everything, one depends on the rule, not on one's management. Then the only people who can make a difference - who have real power - are those who can change the rules. These are players at the top of an organization or collective bodies (unions, for instance) that are far from operations. An over reliance on formalization always results in a dependency that takes the form of an inverted hierarchy. Managers depend on teams to achieve their objectives, but teams do not depend on their managers. The consequences are counterproductive whenever field management is supposed to play a real role.
As companies become increasingly multidimensional or even network like, issues about power become even more pervasive, subtle, and critical than in the basic hardwired form of traditional vertical-and-horizontal matrices. Understanding and managing power are now at the heart of sound organization design.
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