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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More from Gary Hamel and Humanocracy @WOBI #WBFLON (part 2)

This is the second part (part 1 is here) of a review on Gary Hamel's session discussing Humanocracy at WOBI's first conference in London. I've been trying to be really appreciative, as I do think Hamel makes a lot of sense (the fact that I've felt the need to do two posts on one session is evidence of this), and also critical, where I do have other views.

But one of Hamel's points which I really, really agree with is about the importance of principles (for any problem, you need principles, processes and practices to provide performance). Hamel suggests that the principles of bureaucratic organisations get in the way of change and innovation, and in people bringing their passion and creativity to work. We therefore need new principles for post-bureaucratic, humanocratic organisations. I completely agree with this - principles are part of the secret sauce of organisational transformation and are generally much more useful in gaming traction that organisational value.

(However, Hamel talked a little about Ray Dalio from Bridgewater who is probably most famous, in OD circles at least, for his list of what is it, a hundred and something principles. Don’t do that - 10 is quite sufficient. But I did like Bridgewater’s use of ‘dots and polls’ where people give their colleagues a rating against 7 or 8 criteria during the normal course of work. The average person gets well over 2000 ratings during a year. This helps separate competence and entitlement, and supports the development of different hierarchies for different things.)

But whilst I support the idea of meritocracy, I don’t see the problem with using hierarchy to get it. Hamel suggested bureaucratic organisations, the bigger the title the bigger the decision but this doesn’t need to be the case.

Hamel talked about one organisation which sent out a competency framework to 70,000 employees, therefore telling them that 95% of the organisation doesn’t need to worry about new business models or unmet customer needs. But that’s actually much more about the challenge in fitting something meaningful into one slide. All employees need to do strategic thinking but the organisation doesn’t expect the same level of competence it does from executives.

Hamel also suggests that by the time an organisational issue has captured attention at the top it’s often already too late to take advantage of it. But there’s nothing in hierarchy which says all decisions need to be taken by the CEO.  Plus these days there are ways of getting that information shared around quickly. And hierarchy doesn’t stop everyone acting as leaders, or the top team acting as a team.

And there’s an article by P&G’s former CEO AG Lafley in HBR suggesting that there are some opportunities only CEOs can see, some calls only they can make. Which Hamel calls horseshit. So who are you going to ask about whether you should acquire another company or another big strategic issue  in the business then? For me, bigger titles will generally take broader decisions because they have a higher level (strategically, not just hierarchically) perspective, and this will often correlate with bigger decisions too. But that’s not the intent of logic of the allocation. Anyway, I’m going to ask Michael Porter about this today and will report his view back to you to.

I do, however, particularly like the inclusion of community in Hamel’s post bureaucratic principles. The UK is undergoing a loneliness epidemic (I spoke about this on a webinar last week). You would imagine that organisations are a place that people can find connection. But it turns out not. Only 2 out of 10 employees have a close friend at work.

Today’s problems cross functional boundaries and we need to build up social capital - employees who care about each other, trust each other, are emotionally invested in each other and are therefore more prepared to go the extra mile. Without this, businesses can’t solve these new problems.

I also liked the suggestion that moving to humanocracy needs to be human and social too, about building a coalition of the willing by starting with the people around you. People who have power are often reluctant to give it up. Don’t expect change to come from the CEO or HR (ahem!).

There was a lot more but I’ve summarised more than enough. My final and very small point would be that whilst I’m a great fan of Hamel’s work, particularly The Future of Management which I still think is brilliant, and I’m eagerly looking forward to reading Humanocracy as soon as I get a review copy, I do wish he wouldn’t talk about humanocracy in such a hierarchical way (non stop, no questions, no interaction). Both Susan Black and especially Simon Sinek actually demonstrated humanocracy in practice much, much better.

Read more on the need for principles, community, and social capital and network based change in The Social Organization. I do write about reducing hierarchy too but for me, modern organisation design isn’t as simple as moving from hierarchies to networks. Instead, we need to supplement (not replace) traditional functional design (which I don’t think has to be inhuman or bureaucratic) with horizontal teams, communities and networks, but tend to be less hierarchical. Delayering or moving to self management is often a result not the objective of good design.

And often, it’s no organisation design which is required. We just need more of that emotional, social and prosocial perspective Hamel, David and Sinek all talked about - Sinek probably the most clearly. I’ll be posting on that next...

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Gary Hamel on Humanocracy vs Bureausclerosis (part 1)

I’m at WOBI in London and have been listening to Gary Hamel providing an early overview of his book Humanocracy, out early next year.

Hamel has assembled a range of evidence supporting his view that we need to move beyond today's bureaucratic organisations and create new humanocratic ones. I think some of this data is a bit ropey. Gallup's Q12 results don't show that a third of global employees are saboteurs, just that they haven't responded positively to 12 (admittedly important) questions. But from my experience, if we make it easier for them to do a good job than a bad one, most of these people will still try to do good work. And actually, they're not the issue anyway, it's their organisations, which I’m sure Hamel would agree.

Eg, the fact that less than 20% of people are consulted about their goals (European Workforce Study) is a bit stupid. And 70% of jobs having no, or very limited opportunities for originality (US Bureau of Labour Statistics) is quite appalling. 

I'm less concerned about growth in the bureaucratic class (a 108% increase in managers and operations since 1983 compared to 44% in other occupations, and now at 14% of, and with operations, nearly a third of the total workforce). I think the number of pure managers or managers who think their job is about controlling their underlings has actually declined in this period. And most managers are doing valuable work for their organisations, in fact one of the reasons many people are so disengaged is that they're prioritising doing this work, rather than managing their people. (However, I don't agree with the 14% getting 30% of the compensation.)

Hamel describes a range of issues about this, but all of these are open to challenge. Eg management layers will get added, and this imposes a cost, but other ways of coordinating people will have different costs too. I love the way Morning Star has its people agree commitments with each other, but we shouldn't pretend this comes without a time penalty or some frustration for employees.

Bureaucracy -

Humanocracy -

However, we've also been hearing from Susan David about the importance of emotional agility and I think it's actually Hamel's belief and passion for this topic, not his evidence, which is most convincing. Though again, I'd challenge some of the emotional imagery - eg having people buried under 7 or 8 layers of management sounds terrible, but hierarchy doesn't necessarily need to bury people, and I don't believe most people at the bottom of hierarchical organisations feel like they are buried (any more than most people in a network organisation feel like they're lost). For those that do, a true focus on servant leadership would get rid of this.

This point on emotion has relevance for modern organisations too. Yes, we do need to look at our organisation and job designs and management processes. But we also need to spend time on connection. As David noted, innovation is a myth unless we connect with out own emotional agility, and the emotional agility of those we connect with. But we won't do this when we're stressed and thinking transactionally rather than relationally (cognitively vs pro-socially).

Hamel summed it up like this: people don’t bring their private lives to work but if they are struggling there or at work and can’t talk about it - you can’t expect them to be engaged at work if they’re not engaged in each other. Later on, Simon Sinek also made a similar point suggesting that leadership can be lonely and that we need to invest in deep, meaningful relationships and support networks in order be effective.

Making that shift doesn't actually need most of the changes Hamel has suggested - just the encouragement for people to create a bit more time and space for themselves and each other. Eg if over two thirds of people in larger businesses report new ideas are met with skepticism or hostility then we've got a lot of businesses, leaders and managers who need to take a good, long look at themselves and change what they're doing with each other. But they don't necessarily need to change anything about the organisation to do that. Similarly if people feel that they can only get to the top by managing up and stiff arming their colleagues.

It's why in The Social Organization I add a Connections element to my organisation model, and explain why organisation design needs to be supported by organisation development interventions too.

I do agree with Hamel that organisations need to change, and often use the same logic he does to explain this - that business models have changed very radically but our organisation models, ie the ways we allocate resources, change and compensate people, haven't. As Hamel notes, Mary Parker Follett's desire to free the energies of the human spirit still feels like a very distant dream. Most people have very inspiring stories but organisations too often feel like emotional dead zones.

I do believe organisations need radical innovation, and use a lot of Hamel's examples myself. As Sinek explained, there's only a handful of organisations doing things significantly differently and better than all the others, so everyone uses these cases. 

But I'm just not convinced, still, that fighting bureaucracy (mainly management and management layers) is the biggest need to deal with the problem. I see lots of dysfunction, but not that much bureaucracy, and very few bloated, highly inefficient organisations.

More in part 2...

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People Centricity vs Business Support

If you read this blog regularly you'll know I believe that people are / need to be the centre of business strategy. That we need to create value through people and offer new opportunities to business. Not just use people to support operational / customer / financial objectives.

I've got an article on this in HR Zone:

https://www.hrzone.com/lead/strategy/supporting-the-business-isnt-strategic-hr-people-centricity-is

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Top HR Tech Influencer / Speaker

And, particularly as one of HR Executive's Top HR Tech Influencers, I'm also delighted to be speaking at HR Technology Conference in Las Vegas again this year - my first time back there for quite some time.

I'll be talking about the need to link digital and social technologies to our organisation designs.

Maybe see you there?

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Keynote Speaker at WorkSpace Connect

Many years ago I used to attend and present at UBM's Enterprise 2.0 conference in Boston and Santa Clara, emphasising the importance of people and culture alongside technology to create more social and collaborative organisations.

UBM merged with Informa and the event became the Enterprise Connect conference which I follow on Twitter but is a little bit too technology focused for me to attend.

However Informa Tech have now launched a sister show, WorkSpace Connect, which has an even broader agenda than E2conf had, and in fact deliberately intends to pull together IT, Property / Facilities Management and HR - the first conference, I think, to target all three of these disciplines (as I do in my book, The Social Organization).

So, partly because of this connection to E2conf and also, even more importantly, because I passionately believe that all workspace related disciplines need to be working much more closely together - to provide a compelling employee experience, and the people and organisation outcomes our businesses require - I am delighted to be keynoting at this year's inaugural event.

If you are interested in the opportunities for integrating the three disciplines - and if you're reading this blog, you should be - the event take place in Dallas from 9-11 September 2019 and it would be great to see you there!

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California HR Summit

I'll be in the US quite a bit this year, including at the California HR Summit in August where I'll be presenting on Innovation in Reward.

My suggestion here is that Reward is the last area of HR to be transformed, but that technology and other factors now mean this is possible, and necessary. I'll also be talking about some of the main opportunities I see to facilitate this.

Catch me there?

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Teaming and Engagement - webinar

This is the webinar I referred to yesterday in my post on Marcus Buckingham's article The Power of Hidden Teams.

I'll be presenting on my views about the potential for teaming on engagement.

Do join me if you can.

It's on May 30, 2019 at 11.00 AM PDT, 2.00 PM EST, 7.00 PM GM.

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Marcus Buckingham: Teaming and Engagement

This month's Big Idea on HBR is on Engaging Employees. And given that I'm currently preparing for a webinar on teaming and engagement, I've been particularly interested in the first article in the series, on The Power of Hidden Teams.

As the author of The Social Organization which focuses on the importance of teams and groups I'm pleased to see this focus on linking teams and employee engagement. I'm sure being on team does help engage people - we all need connection and relationships, and we can often perform better in a team context - which will also have a positive impact on engagement - too.

And it is an interesting article but to me, delivers less impact than it would have if it didn't over- or mis-state the case. I'm disappointed, again, that authors who accuse others of lies seem happy to deliberately distort evidence to support their own arguments.

I haven't seen the data so this may just concern the article's main case study, but the key reason that Jordan is more engaged that Fritz may be that she works on a number of cross functional teams whereas he works in a stand alone function, or silo (and one with a very high management span of 76).

The hospital which employs Fritz is likely to be more successful because of its cross functional approach - which I wrote about in the case of the Cleveland Clinic in The Social Organization. Fritz also gains direct contact with the patient's family which will help her see the impacts of her work, which also adds engagement. Jordan works in a function, which usually means that people work mainly independently and so lacks the relatedness benefits of Fritz's teams.

Marcus Buckingham uses his data to suggest that Jordan works for a more engaging team leader than does Fritz, and that this reinforces his perspective that engagement comes from the team, not the organisation. But the main case study at least does not support this argument. Instead of this, it demonstrates the potential engagement of true horizontal / cross functional teams. Which of course is the result of an organisational  decision, not one taken by an individual team / team leader.

So yes, we should design teams for human attention, but more basically, we should design teams or other groups to perform what the organisation needs. And that includes a sensible management span with effective managers. Clearly, if your manager does not check in with you more than once a month your engagement is not going to be that great, whether or not you work on a team.

The fact that 83% of survey respondents say they do most of their work in teams suggests people are including any form of group, including functions, within this categorisation. The reason that many teams are more engaging that others will be largely down to the fact that some of the teams are real teams, and others aren't. So much for good data! 

I do find it interesting that 64% of people say they work on more than one team - this is higher than I'd have thought would be the case and I'm pleased that it is. Though it does make Heidi Gardner and Mark Mortensen's warning about over commitment even more important.

It also makes paying attention to the whole organisation, not just the individual teams, more important too. And if we don't do that, we draw the wrong conclusions. For example, Buckingham suggests that it doesn't matter whether people work remotely, as it doesn't affect their engagement in their team. But this isn't why organisations are cautious about this - it's because it can reduce connection and cooperation across the organisation as a whole.

Buckingham notes that three quarters of people working on more than one team say their additional teams don't show up in the organisational directory and uses that fact to argue that we need to capture data on all the teams in order to ensure they're all being managed effectively.

I agree there are benefits in understanding hidden teams so we can answer questions like how does span of control influence patient outcomes. And that, as the authors suggest, we can increasingly get this data from Slack and similar tools.

However, the greatest benefit is from a teaming approach that fits organisational needs. Unless the formalisation of all these informal teams is done very carefully, doing this will just lead to more criticism of HR and linked functions (a bit like the article's criticism that HR tries to coerce people today). The best approach is often to prioritisation measurement of the most impactful teams, and leave the rest to act more informally.

The bigger win is developing team leaders and the organisation's teaming approach, so that when teams are formed they will be well led - rather than intervening to check the quality of each team. And, of course, once again, this is about the whole organisation, not individual teams. Particularly as teams form and unform ever more quickly.

So it's not true that we shouldn't do once a year engagement surveys and that we "pretend that we'd found anything useful". Ongoing digital analysis of exhaust data is an increasingly useful source of insight, but the value of an annual engagement survey hasn't gone away. I also think that doing a functional analysis of this survey data is still the most appropriate form of analysis in most organisations. People may work on additional teams but their most important role and therefore main basis for engagement will still often come from the function. Of course, if the organisation is mainly organised by horizontal teams, then we should slice the organisation horizontally instead.

Also, I still don't like Buckingham's approach of defining engagement as certain responses to 8 specific questions. This may be more reliable but it's not very valid. It certainly does not provide enough insight to suggest that the 84% of people who don't respond positively to these questions are "just going through the motions". And therefore I don't think he should say that "the quality of team experience is the quality of your work experience" either.

I do still think good team leadership is important, and that it will provide substantial engagement benefits as well but this article doesn't really help make the case. I'm prepared to believe that the data may demonstrate this - and perhaps without the distorted reporting on the survey findings I'd have been prepared to accept them.

That's fine - my interpretation of the article does suggest that more organisations should be using a cross-functional team approach - and this is probably the bigger win for engagement.

So, I do still agree with "great teams and teamwork aren't a nice to have, they're a must have". I agree that we should both do and measure more "things team by team, where they make the most difference" and that these are based mainly on intrinsic motivation not extrinsic incentives. And I also agree that we should "train specific teams together" though generic teamworking skills are clearly important too. And that we need to "rethink how we structure the people stuff in our companies - promotion, development, and succession".

You'll find out more about how to do all these things in The Social Organization.

Summary

This seems to be Buckingham's perspectives:

-   All that matters is the team not the organisation / culture
-   What matters most is the team leader and the way they develop attributes measured by 8 questions (which he calls 'engagement')
-   We should manage and measure organisations at team level, therefore informal teams need to be made more visible so we can measure them


These are my own views, which he might call lies:

-   Everything matters, including the organisation, teams and individuals, but
-   What matters most is the organisational approach to teams, as well as communities and networks, and the way these develop social capital
-   Engagement is a major benefit of this approach but is not the main reason to use teams (and engagement will be highest when people work in groups which are the most appropriate to meet business needs)
-   We should manage, and where appropriate (ie the group has a particularly high impact on business performance), measure organisations at team, community or network levels depending on which of these are the basis of an organisation's approach


Note that although we reach similar conclusions, the different perspectives will lead to very different sets of actions. So be careful about what you accept as one or more of your beliefs. And remember that just because someone calls other people's views lies doesn't mean theirs are true and others false. An apple is still an apple, not a banana, however much someone calls it this.

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