Interview with Michael Porter (part 3)

I interviewed Michael Porter at WOBI London this week. This was partly on my main areas of interest in his work and the links between our ideas, and also the points made in his presentations and recent articles:

So to start with, there are increasing claims that it is becoming harder to gain to sustainable competitive advantages for example from Rita McGrath on the end of strategy. Are you seeing this?

MP: No, I don’t understand what Rita is saying. The data is very clear that there are wide and sustained differences in profitability in the same industry. And that it lasts for a long time, not all the time, sometime it’s easy to imitate. And it’s ubiquitous throughout the economy. And I get a little tired being everybody’s foil for everybody to make their name.

There is going to be a dynamic about how long you can sustain things. IKEA has publicly disclosed their strategy for at least 30 years and no one else has come close to it. Because the things that they do are very hard to construct and completely different to the way any other furniture company operates because they’re made those trade-offs.

Part of sustainability is about things you can control. And part of it has to do with what you’re basing your advantage on. Those things can be very different. If you’re Google and you’re competing in the search business it’s a natural monopoly, the more data you have the more valuable your search is. And if you get out ahead nobody will ever catch you. But for other things, if you just have some good people providing a certain level of customer service or support then other firms can find good people to and maybe do it even better by enhancing the technology.

I think there is a highly variable set of circumstances. Every case is different. But you do see companies that have sustainable advantage. And right now, the big GAGA, these big platform models. the whole idea is scale, if you get too big they can’t catch you because your scales too big. It’s a self reinforcing process. So for Uber, the more drivers they have, the less you have to wait, the more convenient the service, There are a lot of businesses now that people see that have these scale effects on the demand side. We used to see scale effects on the supply side but now we’re seeing the demand side can create these scale effects. The trouble with these is that we’re in another internet bubble type phase where we have all these companies that are trying to play these games and the they’re finding out they can’ make money.

And if you apply the five forces model to something like Uber, you’ll see that who is going to capture the profitability is the drivers. To make money you’ve got to able to charge a price that’s great than full cost. We forgot that during the internet period. People were keeping score and thinking you were a success if you had a website with massive number of visitors. But that doesn’t actually produce revenue.

What about the suggestions that the resource based view is becoming more important?

MP: The resources are just one level down. All the things I was talking about today, how you compete, how you do your HR, how you do your service, all those things are that strategy. That’s the choice and actual impact you’re having on the world. All the resources allow you to do those things. So if you’re going to have a superior salesforce with superior technical support then you need a certain type of resource, certain people in order to do that. It involves a set of resources and technology that enables that activity.

Competition is about what you actually do in the marketplace to achieve value for the customer. Then you back up and that’s where the resources are. All the components in the value chain are going to be resources. And if they’re good resources they can be an advantage, part of doing it better. So I never thought the resources was a competing view of strategy. It’s about the level at which you’re looking at the analysis. There is a cause and effect. We can keep on going further and further back up, keep going upstream to look at cause and causes.

We are expanding all the time our understanding of how to best configure and manage and motivate people to do these things. Right now the biggest thing about people is making them excited about working for the company and a lot of that relates to the culture view of the world. Hopefully employees will be pushing their companies to be more shared value and less window dressing. So I’m liking the trends I’m seeing now. More and more people are thinking this way.

For me it’s all about ideas. It’s ideas that move the world and it’s ideas that help people do things better. So I’m in the ideas business, with the idea that the ideas are always evolving as opportunities and technologies change.

So are things like core competencies, or McKinsey's Organisation Health an important idea in strategy?

MP: What does core competency mean, what does it really mean? It means you’ve got some asset and some way of doing something that is distinctive and unique, it’s the same thing, it really is. These people are making up distinctions that aren’t real. It’s not that they not good people I mean they’re great people. And I think different lenses and different ways of looking at things and explaining them is very helpful as it forces people to figure out what they really think and where the cause is and where the effect is and so forth. But unfortunately in the management thinking industry there’s all kind of efforts to create distinctions where maybe there isn’t such a distinction and actually it’s all the same thing.  I’m not mad at anyone, I’m just trying to help people understand not to think that if you use a resource based view of a firm you don’t need a strategy. It’s just about where the roots of the advantage are embedded.

You also suggest in ‘Towards a Dynamic Theory of Strategy’ that creating a theory of strategy involves a the chain of causality. Is it valid or useful to think about customer value chains or workforce / organisation value chains which inform your business value chain?

MP: That’s fine. Strategy is about what you ultimately do at the end of the day to compete in the market How you ultimately get there, I think there is a lot we can learn about that. But it’s so unique and there are so many different nuances.  It’s been less powerful but I’m totally of the view that to get to this kind of salesforce delivering this type of value with these kind of unique strengths there’s a long process, you’ve got to hire these people, you’ve got to figure out how to hire them and how to equip them  with technology and so forth. Underneath every piece of the value chain there’s another value chain like activity which are the steps you take to get there. And as get more about insight about management we have more insight into what some of those things are.

What’s helpful is that we’re getting up the causal chain. Strategy is about what you do in the marketplace but how you get to doing that is a fascinating question. That’s why I’m interested in the dynamic view of strategy. We also find that very few companies that have a great strategy figured it out in advance. It’s partly some core  insights that you have and then you learn how to do it better, so it’s a dynamic process.

And has the role of business leaders and CEOs been changing? For example, Gary Hamel was talking about everyone in a company needing to think strategically. Is there now a need to get more people involved in strategy, rather than just the CEO or a small planning department?

MP: In general a top down view to strategy doesn’t work so well because the people who need to work on it, need to execute it, need to contribute to it, need to be involved in fine tuning the net view.

What has always been important and always will be important that everyone involved in the company needs to understands the strategy. Somebody needs to be able to articulate it, make is explicit, make sure it comunicated, and in multiple ways engage all the different parts of the organisation. Or you’re going let each function of the company drifting off in whatever direction is cool in that function.

What do CEOs do? What’s the job, what’s success? What are the activities involved in this role and how do they work with these massive number of other people involved in these companies as they can’t engage everyone, how do they best create leverage? And strategy turns out to be one of the major uses of CEO time. Because it’s the way they get alignment and get all the people in the organisation to understand who we are and what we do and who we’re serving. Otherwise they’re taking a risk that people drift of in whatever direction is cool because they get a deal but the deal’s not consistent with the where the company is going.

Strategy is one of the tools for developing social capital, for getting alignment and most CEOs invest a lot of time in that, they particulate activity in the strategy process, they’re always out there talking about the strategy, and reminding all their employees whenever they do out and meet with thousands of people, they’re telling a consistent story and they want everyone to hear the same story.

CEOs spend a lot of time on strategy, reviewing businesses, operating reviews, they start with the numbers but also understanding how well is this business doing and why and usually the analysis ultimately it cuts through to strategy issues.

So I’m fascinated by the role of a leader in a company employing 200,000 people - what do you do? We have these enormously complex enterprises now, and lots of really small interesting companies that are growing up. But the key thing we have to have to do, we have to have some higher level guiding principles otherwise we get lost in idiosyncratic discussion that’s not anchored in the real world and what competition is really like - for example, if you are going to have a sound strategy you need to figure out what customers you’re going to serve and so on.

Ultimately, strategy is a creative act, it’s a group of people figuring something out that nobody figured out before because if someone had figured it out it wouldn’t be distinctive and it wouldn’t lead to success. So I always talk about strategy as an act of innovation, involving a lot of different people in a complex system called a company. So how do you get people opened up to think creatively?

But between creating the strategy and implementing it, does it need to come back to a small group of people or person:
 

MP: Somebody has to be able to see the whole and help articulate articulate the whole and make sure there is alignment across all the functions. Any part of a company, product department, quality control, sales force, there’s a certain logic in salesforce management and without clarity on the strategy they’ll just do that. So if the cool thing to do in marketing now is to do social media they’ll just do that. But then the question what is the purpose of the social media  and to what is it contributing and how does that work? So there is a need for a holistic thing to ensure that the whole company is contributing in some consistent way to some consistent strategic positioning.

 

And does that person who can see the whole need to be the CEO?

MP: Not necessarily, there are multiple levels of strategy, business strategy, group strategy, etc. But ultimately the CEO of that business unit is the only one who has right perspective. Everyone else at last somewhat worried about their part. They want to preserve their importance as Chief Marketing Officer or Head of Logistics. The CEO is the only one who is actually neutral and only cares about does all this come together into something distinctive and important and are we reinforcing ourselves rather than fragmenting ourselves?

You can have a lot of people involved in the process but ultimately the people need to come together with the overall company success at issues, not their function, how many people they get to hire. You need to get people away from the functional logic. So there’s a certain good practice on what a good supply chain looks like. Well, it tuns out a good supply chain really depends on the strategy. Do you need to be there every day, do you need to show up on time? - there’s lots of different variations in the supply chain. There’s no such thing as a good supply chain, only the supply chain for this strategy. That’s a point I have to make all the time because people don’t understand that.

We talked about a few other things indlcuing national competitiveness, Brexit and clusters, but I think the above points are the main ones which will interest readers of this blog.

These were my other posts on Michael's presentation:

http://strategic-hcm.blogspot.com/2019/06/michael-porter-strategy-HR.html

http://strategic-hcm.blogspot.com/2019/06/michael-porter-shared-value.html

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Me and Michael Porter on Strategy (part 1)

I last saw Michael Porter present at the CIPD conference in Harrogate over 20 years ago and seeing him speak again was one of my main reasons for attending WOBI.  And if you're wondering, given the title of the post, no, I wasn't talking with him (you'll understand the reason for that title later on). Porter kicked off with an overview of his ideas on strategy, which were good to hear again.

Business strategy is about deciding on whose needs and which customers you are going to serve and then on how to do this uniquely well. If you're going head to head you're not going to win. Mission statements, a desire to be #1 or 2 in a market, etc, are not strategies. Strategy is a concrete set of choices about your business in order to deliver unique value to whatever customers you want to serve. You can't serve all customers or meet all needs so you need to be distinctive about where you're going to play.
 

If you compete on price and that's the only thing then Porter feels sorry for you as you're likely to enter into a race to the bottom. So ideally you want to differentiate, to create something unique about you meaning that you can charge a premium price. This depends on a unique value proposition supported by a value model which enables you to deliver the unique proposition efficiently. Often this will require trade-offs too. And everyone needs to know the answers to these questions or your sales people will go and talk to the wrong people etc.

Ie you need to tailor the primary and support activities in the value chain around this proposition. Eg how do you manage your human resources and what type of human resources are you trying to attract? You can't do what everyone else is doing. This provides a new operating model. 

Strategy is not execution. Porter hears things like it's all about execution, and execution eats strategy for lunch that it doesn't even bother him any more. But choices are different to execution. If you can't figure this out you've got a problem. There's no one best strategy, just whether it offers unique value to the customers it wants. And integrating these choices through the value chain and activity system to provide fit. There's no such thing as a good Marketing or HR strategy, only good HR for the overall strategy, so it all fits together as part of an overall holistic system.

I really enjoyed the session and was disappointed to overhear a couple of people later suggesting it was like listening to their lecturers at college. I wanted to tell them: believe me, your lecturers weren't even in the same galaxy as Porter. And what did they expect anyway. As Porter said, strategy is used too loosely, at a very high level. But it's actually incredibly specific. About how it relates to your industry, your choices and how you position yourself. If you're Simon Sinek speaking about a need to change your mindset you're just going tell a few stories (this is me again now). If you're Gary Hamel and you want to get people excited about a problem that doesn't really exist then you're going to share some research evidence and case studies.  But if you want people to understand a precise way of doing strategic management then you're going to need to share some models.

(This is probably also the reason that the leadership competency framework used by Hamel in his presentation only showed 'Thinks strategically' as an executive level competency.)

But I suppose the main reason I enjoyed the session is that I often talk and write about Porter's ideas, in fact, this, coincidentally, was published today. Please do go there and read it as you'll want that background to fully understand the rest of the post. Because I also apply Porter's thinking and models to HR and organisation design.

In ‘Towards a Dynamic Theory of Strategy’ Porter writes that his thinking recognises his value chain is based on a chain of causality:

"A fundamental issue in creating a theory of strategy is where to focus the chain of causality, A stylized example will illustrate. We might observe a successful firm and find that its profitability is due to a low relative cost position compared to its rivals. But the firm's cost position is an outcome and not a cause. The question becomes: Why was the firm able to attain this cost position? Some typical answers might be that it is reaping economies of scale, or has moved aggressively down the learning curve. But again, the question becomes why? Some possible answers might include entering the industry early, or the firm's ability to organize itself particularly well for cost reduction. Once again, however, the question becomes why? And we could continue moving along such a chain of causality even further. 

The literature in both strategy and economics addresses many different points in this chain of causality. Indeed, many differences are less conflicts than theory positioned at different points in the chain, as we will see later. Any theory of strategy must grapple with how far back in the chain of causality to go. The answer may well be different for different purposes. A theory that aims very early in the chain may be intractable or lack operationality. Also, aspects of the firm that are variable in the long run may be fixed or sticky in the short run. Conversely, a theory oriented later in the chain may be overly limiting and miss important possibilities."

I use this argument to suggest a sequence of four value chains (taken from The Social Organization), and in particular that there is an organisation value chain. This chain describes the inputs, activities and outcomes that relate to the management of people within an organization.

Organisation strategy is about deciding on what needs in your business you are going to serve and then on how to do this uniquely well. It is a concrete set of choices about your organisation in order to deliver unique value to whatever business needs you want to serve. You can't meet all needs so you need to be distinctive about where you're going to play.

If you compete on cost and that's the only thing then you're likely to enter into a race to the bottom. So ideally you want to differentiate, to create something unique about you meaning that you can provide a premium contribution to your business. This depends on a unique value proposition supported by a value model which enables you to deliver the unique proposition efficiently. Often this will require trade-offs too. And everyone needs to know the answers to these questions or your managers and business partners will spend time with the wrong people etc.

Ie you need to tailor the primary and support activities in the value chain around this proposition. Eg how do you manage your HR department and what type of HR people are you trying to attract? You can't do what everyone else is doing. This provides a new HR operating model.

Strategy is not execution. Choices are different to execution. There's no one best strategy, just whether it offers unique value to the business it supports. And integrating these choices through the organisation value chain and activity system to provide fit. The organisation strategy describes good organisation and people management for the overall strategy, so it all fits together as part of an overall holistic system.

Ie most of the logic used by Porter for business strategy applies really well for organisation strategy too. In fact this is the way I suggest we deal with Hamel's point that whilst business models have changed, organisation models haven't. It's because not enough people understand or use tools like the organisation value chain to change and develop best fit, differentiated value chains. My and Michael Porter's logic shows the way to do this.

I had a press interview with Michael Porter at the conference and asked him about the above. However. I'm going to report on that later on...

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Company Lifespan - Why Do We Care?

A common slide in many change oriented presentations shows the declining lifespan of organisations. (I took this one from Dion Hinchcliffe's session at Digital Workplace Experience in Chicago, and comes originally from this.)

It's interesting data and does provide evidence of a VUCA world. But why why do we care?

Even if companies learn to survive for longer, they'll have:

• Different shareholders

• Different customers (usually)

• Different brands (sometimes)

• Different employees.

Take the current changes in car companies learning to compete with Tesla and Uber etc. Even if they move into the new digital world, they'll be employing designers and programmers in California, not engineers and machine operators in Detroit.

The only people who benefit from company longevity is the senior leaders and perhaps high potentials in the company, who may survive the complete transformation of the business.
Which is, of course, the wrong focus. We're got enough problems with leaders worrying about their own rewards rather than the long-term performance of their businesses without this further distraction.

For example, wouldn't a company actually be more successful if it managed the inevitable decline of its current activities, keeping and developing its people for the longer term as long as it can. Rather than getting rid of its people as quickly as it can, and recruiting a different set of people with more modern skills, just so its senior leaders can run the company that bit longer? Even if it means the company eventually goes to the wall?

A good example may be Royal Mail - eg I'm currenty watching the RSA's event on Good Work in the New Machine Age, kicking off their Future Work Centre.

Moya Greene, CEO at the Royal Mail Group, suggests their delivery business has lost 10,000 employees whilst a similar number have been created elsewhere. But these platform technology jobs are boring, low quality jobs. Deliveroo doesn't provide the same quality experience, pay or benefits as Royal Mail's delivery business.

They're doing this because Greene doesn't believe that people like change (I think that's debatable, but I can imagine why Royal Mail's experience will have suggested this to her). But isn't the Royal Mail doing the right thing anyway? They don't need to become Deliveroo, it's much easier for a start-up to do this. The best thing they can do is to be the best Royal Mail business for as long as they can. Isn't it?

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Social business webinar

 

   Posting about my forthcoming social innovation webinar reminded me that I’ve not given you the links to the archive or my slides from my Social Business webinar back in the Spring.

So, here you go:

• Citrix GoToWebinar archive
• Slideshare presentation

 

Social business 2.0

View more presentations from Jon Ingham

 

And as a further reminder, here are the links to the same resources for my previous webinar on HR 2.0:

• Archive
• Presentation

 

Technorati Tags: Social business,enterprise 2.0,team,community,organisation,development,HR,social media,web 2.0,management 2.0,communityship,workplace design

 

 

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HR Challenges 2011 – Survey Results

 

  As may know, I’ve been running a short survey over the last few months.  This is now closed and I’ve been through the results.

A lot of my questions for qualitative, making it difficult to communicate the results in a short summary but I’ll come back to individual questions from this over the next couple of months.

Anyway, I started with key business challenges.  Your (my readers’) most popular responses included:

• Dealing with recession
• Revenue growth
• Profitability
• Understanding customer needs
• Ensuring performance
• Dealing with the uncertain economy
• Dealing with market turmoil
• Dealing with political interference
• Globalisation.

 

I then asked what HR’s own challenges would be to respond to the above business challenges.  Your responses included:

• Job design
• Strategic recruitment
• Retaining talent
• Employee capability and engagement
• Performance pay
• Leadership development
• Social networking
• HR measurement and analysis
• Automating HR processes
• Integration of HR applications
• Being creative
• Managing change.

 

(Some of these also appeared in the business challenges section which I thought was a very positive sign.)

 

And I asked about how difficult HR teams would find it to respond to these challenges, and what the major issues would be.  Here are the results:

 

 

HR’s values and perspectives seem the most suited to dealing with its own and its businesses’ challenges – with a quarter of the sample rating its values as very well suited.  I’m surprised how well this aspect has scored as I often feel HR has a lot of beliefs or an ideology which limit its own effectiveness (acceptance of its support role, lack of interest in new insights, too much focus on measurement etc).

The capabilities of HR professionals is also rated quite strongly, with two-thirds of you suggesting that current capabilities are well or very well suited to the challenges.  Again, this seems more positive than my experience!  Some of you mentioned ongoing transformation of the HR function and the need to reskill HR professionals in newer areas like measurement and analytics and in areas supporting interventions to deliver business strategies (requiring better understanding of business models and cultures etc).

The quality of HR management process is much less well scored with two-thirds of respondents suggesting that process quality is either poorly or very poorly suited to dealing with HR’s challenges.  This is less of a surprise to me, and agree that a lot can be done to improve processes.

HR operating models are also rated less strongly than values and perspectives, but not as low as processes, but still with a majority suggesting that these models are poorly or very poorly suited to HR’s challenges.  Again, I suggest that’s about right.

 

I also provided a ‘other’ category and here you suggested it is the way HR is perceived which is the major issue, as a generally poor perception means that when competing on budgets for projects, HR usually looses to other ‘core’ business projects.  There was also a view that the poor perception is based mainly on ongoing needs to meet new customer requirements and implement more effective technology meaning that HR is never able to change quickly enough to meet the demands being placed on it.

 

I also went on to ask more about the effectiveness of your HR strategies.

 

Strategic HCM?

I didn’t ask specifically whether you were doing ‘HCM’ ie managing your people in a way that would accumulate human capital as 1. this isn’t the definition everyone uses and the question would have been interested differently by different people, and 2. I know the positive responses would have been very low!  But I did ask whether your HR strategy is tailored to your particular organisation (ie is it purposefully and significantly different to that of your competitors / other similar organisations) which is a key aspect of an HCM strategy.

And once again, I was surprised by the high proportion of positive responses.  About half of you suggested that you do have somewhat tailored HR strategies with a further 15% suggesting these are well tailored to your particular organisation.  One third of you suggested that your HR strategy is not really tailored but only a handful suggested there was no tailoring at all.

 

Social capital?

I did ask whether your organisation has a strategy to improve collaboration / to develop relationships between employees (eg through Enterprise 2.0 / use of social media tools, organisation design, facilitation of communities etc) – which I deal with in my other blog, Social Advantage.

Again, I thought responses were very positive, and only slightly lower than my question related to HCM above.  So two-thirds of you suggested that your organisation had something of a strategy (about the same as the number who responded that your organisation has a well tailored, or something of a tailored strategy in my question above).  And about 15% said you didn’t really have a strategy in this area with a similar number saying you didn’t have a strategy like this at all (about the same as the number as suggested that you do not really have a tailored HR strategy).  So similar positive and negative responses to my earlier question, but with more of the yeses responding with ‘somewhat’, and more of the ‘not really’s responding with ‘no’, to the second question.

 

HR’s role

I also asked about HR’s role within these strategies, and here responses were quite low, perhaps because I’d just mentioned things like enterprise 2.0.  But about 20% of you still said that HR has a leading role and another 20% suggested you have a joint or equal role with the rest of the business in HR strategy.  But although nobody said HR was not involved in strategy, nearly two-thirds of you suggested HR only has a supporting role.  That’s not great, is it?

 

HR measurement

I also asked whether you have an effective approach for measuring progress against your HR strategies.  Over 80% of you suggested that you do have a somewhat effective approach with nearly all of the rest of you suggesting that your approach is fully effective.

Again, another surprising result for me, and although I agree HR has been increasing its capability here (a point also made in I4CP’s recent research that I reviewed recently), from what I see I still think there is a long way to go to make these approaches really effective.

 

Surprises?

So what’s behind these surprises you’ve been giving me?  Well, you’re the people who are doing the real work (most respondents were internal practitioners not suppliers), and I only work with a relatively small number of clients each year, so in many ways you are closer to this than me, and your aggregated feedback is very powerful.

Still, I’m not totally convinced.  I just think there are huge opportunities for improvements within HR.  Most of you see some of this.  I think my perspective a little further away from the coal face allows me to see more of these, or at least see them differently.

It’s why I think close partnership between HR Directors and insight based HR consultants like me is so powerful.  I’ve got the understanding of how things could be really different, and you’ve got a handle of how things work now in your own organisation.  You put these two things together and I think you’ve got a really good basis for dealing with your particular business and HR challenges, whatever these are.

 

Look out for more from the survey over the next month.  I’m also getting in touch with the lucky winner of my ticket for the Economist Group’s Talent Management Summit, and hope to report more on a conversation with them about their perspectives on HR’s challenges too.

 

Technorati Tags: HR,challenge,predictions,forecasts,survey,strategy,2011

 

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TRU London: Why I told Kevin Wheeler he was talking rubbish

 

  I was obviously still a bit irritated moving on from these previous sessions to Kevin Wheeler’s on the future of work.

Let me be very clear – I agree completely with most of what Kevin has to say.  I agree that work is becoming more flexible – being done by contingent workers, crowd sourcing, and new entrepreneurial organisations etc.  I agree that workers are changing – with more of them being based at home or working from their local Starbucks, using ‘scatter cushion’ technologies, and sometimes having more than one job.  And I agree that we’re seeing some interesting changes in organisations too.

But I also think we can overdo the case for new, fluid, network organisations.  Most companies in the UK are SMEs that’s true.  But the predominant paradigm of business is still the big, formal bureaucracy and I can’t see that organisation form going away.

So when Kevin referred to the end of hierarchy I’d had enough.  “I think that’s rubbish”, I said.

As I wrote above, it’s not that I disagree with the trends Kevin was describing.  And I do think big business needs to and will change.  But I think it will do that through adaptation rather than complete reinvention, and I think that’s probably right.

I talked about GSK and a blog post I’d read recently (it was actually this one from Anne Marie McEwan) discussing the company’s move towards smaller Dunbar number sized groups (I’d also posted on this previously).  This is the sort of change I see happening.  But it doesn’t spell the end of hierarchy.

It’s why in my previous sessions on Social HR, I’d emphasised the need to focus on clear outcomes (the strategic ones I discussed in my last post as well) rather than lists of attributes.  I don’t believe all organisations need to operate the same way, and I suspect not many of them will look like Zappos, Semcos and similar maverick organisations.

And I don’t think that matters much.  What I advise organisations to do is be clear about what outcomes they’re trying to create, and then identify the processes and ways of working that will be right for them – based upon their individual situation and context, and what they see happening in the world.  This is why we DO need to understand Kevin’s trends, but simply extrapolating what’s happening now is poor futurology and isn’t a good guide to how organisations should change now.

 

Also see these two posts on hierarchy:

• The Social Revolution - isn’t hierarchy to networks
• Social networks and organisational hierarchies

 

Technorati Tags: Kevin Wheeler,future of work,futurology,business,HR,organisation,trends

 

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The Even More Essential Advantage!

 

   I’ve been reading Paul Leinwand and Cesare Mainardi’s new book, the Essential Advantage (and Mainardi and Art Kleiner’s Strategy+Business article, The Right to Win both of which build upon their earlier article in Harvard Business Review, The Coherence Premium).  Given that all three texts are focused on ‘winning with a capabilities-driven strategy’ which is largely what I write about here, I had high hopes for these – which haven’t quite been delivered…

I do like the articles and particularly the book – it’s definitely one of the best recent books on business strategy, providing a very comprehensive treatment of existing strategy models - for example, in the detail and case studies supporting different strategic ‘puretones’ and ‘hues’.

And I agree completely with the book’s central premise about the need for coherence.  I also like the way the authors describe how this can be developed through coherent structures, innovative talent systems and informal conversations (although there’s a lot more that can be done here which they gloss over – even organisational structures become simple hierarchies – and there’s nothing at all about culture).

One thing I didn’t like was the authors’ choice of terminology which I found rather annoying.  So basically, the book argues that three things need to aligned: an organisation’s products and services, its ‘way to play’, which most readers will know as competitive positioning, and its ‘capabilities system’ which are really its core competencies:

Leinwand and Mainardi

 

For a book on coherence, it’s also surprisingly incoherent.  For example, “Having the same way to play as your competitors can work out advantageously if you have a better capabilities system”.  Where’s the coherence premium in this sentence?

I also don’t think the book’s suggestion that coherence starts with a focus on capabilities ie through a capabilities – or core competencies -driven strategy (“we prefer the phrase capabilities-driven, although other capabilities are involved, because the term recognises the significant role that capabilities play as an engine of value creation”) is correct.  That’s because these capabilities, ie core competencies, as both these authors and Hamel & Prahalad before them define them, do involve the skills of the workforce, but end up mainly being about business processes and technology.

But the authors note that:

“Patents and copyrights expire.  Business processes prevail until more proficient competitors appear… Technological monopolies are thretened by new innovations.

At the same time, most organisations are ‘sticky’: their identies, cultures and relationships are by nature slow to adapt to changing conditions.”

 

So if this is this is the case, why not start strategy development here, with real organisational capabilities based on an organisation’s people, their relationships and its culture -  as described by Dave Ulrich, and by me.  And then, also ensure that these real capabilities are coherent with the capabilities system (core competencies), way to play (competitive positioning) and products and services in the book’s model.

But that’s not all, there’s an internal need for coherence too.

So if you take each of the three elements in Leinwand and Mainardi’s business-focused / external model, they each have an equivalent from an organisation-focused, internal perspective too (what Julian Birkinshaw describes as ‘management’ vs ‘leadership’):

• The way to play / competitive positioning’s equivalent is a set of internal, organisational capabilities.  Both competitive positioning and organisational capabilities are the outputs of the business / external and organisation / internal systems in a company respectively.  This actually comes through in the book when the authors write about Ulrich’s leadership brand.
• The capabilities system / core competencies’ equivalent is the organisation’s HRM,or HCM, architecture.  These are the inputs to the two systems.
• The equivalents to the organisation’s products and services are its people.  This is what is transformed between the input and output into business / organisational value.

 

The HRM architecture, organisational capabilities and people also need to be coherent with each other, as well as with the three elements described by Leinwand and Mainardi too.  So the model actually needs to include two concentric circles, like this:

Leinwand and Mainardi (adapted by Ingham)

 

And this leads to my main criticism of the book.  The stuff on the outside is the easy bit.  It’s time to focus more on internal coherence now.  And there’s nothing at all on this in the book.

 

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HR in the new capitalism

 

   I'm at the CIPD's conference, Managing through a Downturn, today, so I'm going to go back to the theme of layoffs, and in particular my questions / suggestions over the role of HR in the global reset, for a couple of posts.

Before I write about the conference, I'm going to focus on some broader reporting, particularly some recent articles in the FT's new series on the future of capitalism.

This notes that "capitalism – our ability to buy and sell, move money around as we wish, and to turn a profit by doing so – is in deep trouble".  I actually think the issue is broader than this - the change I'm most interested in is that people are becoming less interested in serving the goals of capitalism, and will therefore be less ready to invest a major proportion of lives for the luxurious lives of their bosses and the profit of anonymous shareholders.

Although as I've pointed out before, I think there is evidence both for and against this situation.  But I still feel the pro change is pushing ahead.

Did you see, for example, that Jack Welch, regarded as the father of the 'shareholder value' movement that has dominated the corporate world for more than 20 years, has said that "we are in unchartered waters" and that it was “a dumb idea” for executives to focus so heavily on quarterly profits and share price gains....  "Your main constituencies are your employees, your customers and your products", he says.

And even those who have benefited most from the single minded focus on shareholder value seem to be started to push back against what everyone else has already been viewing as unfair rewards.  The FT series provides the example of a banker who turns down an airline upgrade, and the BBC Analysis programme has also broadcast an excellent episode on this, the Threat of Thrift.

Writers in the FT series also note that we have sacrificed "the most important source of happiness, which is the quality of human relationships", allowing our society to become "too individualistic, with too much rivalry and not enough common purpose".

It's not that capitalism will disappear: "Like democracy, it has serious flaws – but, just as one find faults with democracy, the critics of capitalism will discover that all other systems are worse...  We do not want communism – as research shows, the communist countries were the least happy in the world and also inefficient. But we do need a more humane brand of capitalism, based not only on better regulation but on better values."

But the key question is still, "If, as it has become painfully apparent, the value system and operating principles that informed the corporate psyche since at least the end of the cold war were found wanting, what should replace them?"

A model may come from the Scandinavians countries which have "managed to combine effective economies with much greater equality and mutual respect. They have the greatest levels of trust (and happiness) of any countries in the world".

And also in Asia, "executives – with the exception of some family tycoons who use their companies as piggy banks – have generally eschewed the sort of remuneration packages that have become so discredited in the west".

It's all interesting reading.  But I suspect not half as interesting as what will happen next...

 

Technorati Tags: FT,Future of Capitalism,Jack Welch,need to reconnect

 

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HCM in the Balanced Business Scorecard / Strategy Map

 

You can see the separation of the people and business management systems in most businesses' strategy maps.

Most, in fact very, very nearly all, show linkages between objectives in the internal process, customer and financial perspectives.  But there are very rarely connections between people and objectives in the other quadrants.

 

 

Why is this?

It's because what we do in HR, and the deliverables of this activity, ie human capital, affects everything else we do in the business.  Eg having engaged people doesn't just support one objective for operational success, it supports all of the objectives within 'internal processes' and also directly informs objectives relating to customer and financial success.

They're two different systems, see.

But this only works if you think about human capital as the output of what HR does, ie of the people management system.  Still think human capital is just unnecessary jargon?

 

Technorati Tags: strategy map,value chain,human capital

 

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HCM and business success

 

   I also wanted to pick up on Richard Donkin's comments linking success in human capital management systems and business results. Writing about the Royal Bank of Scotland, Richard asked:

"So were we all wrong? I think the answer is 'no'. The HR team headed by Neil Roden at RBS has done some pioneering work in performance management. The bank's recent decline in fortunes tells us not that HR is ineffective, but that HR's value may be less than is sometimes claimed. It couldn't halt a slide in investor confidence as the bank was engaged in consolidating an expensive purchase of Dutch bank ABN Amro."

 

This is something I come across a lot.  For example, I often use Yahoo! as an example of personalised employer branding.  But I know some people will feel that the fact that Yahoo's business is still in casualty detracts from this case study. And I was even expecting a bit of a back lash against road-kill Woolworth's recruitment team winning a Personnel Today award recently ("if they had been recruiting the right people, they wouldn't have got into this mess would they...").

I don't think these criticisms hold.  HR doesn't have to be operating in a successful business to be good.  And poor HR still can be found in many profitable businesses.

 

Human capital as a bridging concept in the HCM value chain

I've previously posted about the HCM value chain and how this can be used to show that HR can take accountability for human capital, but I think this also shows that HR can't be accountable for business results.

The CIPD talk about human capital being a 'bridging concept' and I think this is absolutely right.  Human capital bridges between two systems - a people management system, and a business system.

The output of the people management system is human capital (creating value), or the human resources required to meet business goals (adding value).  And these are the inputs to the business system as well.

HR can be accountable for the outputs from the people management system.  Ie we can ensure that the business has the capability, levels of engagement etc it needs to be successful.  But what it does with this human capital is largely down to others outside of HR.

 

OK, you might expect some links between good HR and good business, and if poor management or poor behaviours are the fault of poor business results (as I've previously suggested has been the problem in the City) then you'd want to see HR challenging these.

But good HR / HCM can't guarantee business success.  The best it can do is to stack the odds on your side.

 

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The power of Mojo

A little while ago, I posted on the the need for organisations to have an internal purpose: a clear big idea about the organisation that increasingly needs to be internally rather than externally generated (ie about how the organisation's going to be rather than what it's going to do).

I linked this need to growing interest in self-actualisation and increasing cynicism over corporate messages within employees.

I want to use this post to extend on the idea, and will then further develop it over the next few days.

So firstly, why mojo? The word apparently traces its origins back to Congo, Africa from the word moyo, meaning 'soul' or 'life force'. More recently, it is often applied to that often elusive quality (magic, personal charisma, energy) that sets a person apart from everyone else.

This is what I'm talking about on an organisational level too - the organisation's real central essence that gives it its life and character and distinguishes it from elsewhere.

And I think there are two types of organisational mojo - the first of which is something absolutely central to organisational strategy and which is going to make this strategy real and achievable. The second is a complementary focus to the main business strategy - something that will fit beside and support (if not drive) the strategy, but which will be more motivating for employees.

More shortly...

Building towards the long-term

I've already posted on Ulrich's article on leadership brand in July and August's edition of Harvard Business Review but the issue also includes another couple of interesting articles on managing in the longer-term.




The one that particularly resonates with me is Henry Mintzberg's opinion piece: Productivity Is Killing American Enterprise. Mintzberg draws a parallel between a reduction of 'organisational capability' and running out of stock:

"Imagine what would happen if you fired everyone in your company and shipped from stock: Working hours would disappear while output would continue. That would be extremely productive, and you’d make a lot of money in the bargain. Until, of course, you ran out of stock. In my opinion, many American companies are running out of stock. They’re trading away their future health for short-term results. No CEO fires everyone, of course. But thanks to corporate subservience to shareholder value, which means driving up the price of a company’s shares as quickly as possible, CEOs have been finding all kinds of other ways to cash in the goodwill that accountants and economists have trouble measuring.

Trashing the brand is one easy way. Cutting R&D is another. Then there is managing by the numbers: The CEO decrees the desired results, and everyone else has to run around meeting them—no matter what the consequences.

Most popular of all, of course, and closest to shipping from stock, has been “downsizing,” a euphemism for firing operating workers and middle managers left and right to cut costs. At the drop of the share price, even as the company remains profitable, out the door they go: bones thrown to the hungry dogs of the financial community."

Mintzberg puts the problem down to the short-term focus of American business and extols the need to get the analysts off the back of the corporations.



But is there really a problem? On the 14th July, the Economist ran an article Jam today in which it questioned whether short-termism was really an issue, quoting Baruch Lev at NYU: "If short-termism is such a problem, how come this country is doing so well?" The Economist concluded that a better balance between the short and long term is needed.



This echoes another article in this edition of HBR, Focus on the Middle Term. This builds on previous McKinsey research that outlines the need to focus on three time horizons:

• Horizon 1 corresponds to managing the current fiscal-reporting period, with all its short-term concerns
• Horizon 2 to onboarding the next generation of high-growth opportunities in the pipeline
• Horizon 3 to incubating the germs of new businesses that will sustain the franchise for into the future.

As its title suggests, the article recommends focusing on the middle term in order to succeed in the long term. This echoes the points I make in my book on Value for Money, Added Value and Created Value which largely correspond with McKinsey's three time horizons. Organisations need to satisfy the medium term and add value to their stakeholders before they can effectively deal with the needs of the longer term, and create value to 'sustain their franchise'.



HR has the same needs as well. HR needs to add value by being a more effective business function, but it too will only sustain its franchise if it thinks long term, about the germs of potential residing in the organisation's people, and creates value for the organisation based upon this.