Are you running your company like an old communist country?

It is generally accepted that the wall fell as a result of the actions of Regan and Gorbachev although it probably would have fallen anyway as a result of the systematic and serious failures that evolved inside the totalitarian system.

You would think that companies most often are managed by principles derived from capitalism and while this might be true there are a large number of companies that have adopted similar vices to those of the former communist countries in the world.

The question is if what is likely to have caused communism to fail is a good foundation for a long term sustainable strategy aimed at creating engagement with both employees and customers.

Test your company against the doctrines below and find out if you are facing obsolescence:

1. Power is concentrated on few hands

A significant issue of the communist countries was the limited number of people that had authority to make real decisions regarding resource allocation in strategic and operational situations. A culture of delegation assumes that the top leadership of the company are better qualified to make all decisions on the corporation’s behalf – in short they know better. This kind of “Politburo” structure fights empowerment like the body attacks a virus – the distribution of power that is at the core of empowerment is a sacrilegious concept that cannot even be discussed. A concentrated power structure isolates the leaders from the organisation and alienates the employees and the customers rather than engaging them. Organisations that successfully engage both employees and customers have 240% better performance according to Gallup.

2. Information access is limited and decision making processes are not transparent

A relic from the industrial age where information was key to competing it is now mainly used by poor managers to cement their power position. Very little information can be considered so proprietary it should be kept from employees. The social revolution is changing the way that information is used inside companies and it is also making it very difficult to keep decision making processes secret when all stakeholders have the possibility to instantly spread uncomfortable secrets immediately.

3. The leadership is not democratically elected.

In principle the board and though them the CEO should be (s)elected by a democratic process that operate by shareholders voting rights. In many companies this process is not as many shareholders don’t exercise their voting rights. The largest stock holders in the world are pension funds managed by professional managers, not by their true owners. This means that rather than owners voting for managers to take care of their best interest, it becomes a case of managers voting for other managers / with that the danger of managers acting in their own best interest rather than the owners. One of the signs of a “Politburo” is a board with members that has not changed for many years and always sides with the CEO.

4. The company has a lack of purpose

If you have a mission of becoming the “Very best company in the x industry” you are probably not the most purpose driven company in the world. Instead you are likely to have a focus on serving “shareholders”, which sounds a lot better that senior management serving themselves. It is important to have a strong purpose that can attract and engage employees, customers and other stakeholders if you don’t want to compete on price alone. If your leadership team are defenders of status quo – they are likely to be a Poliburo:  The society for the preservation of senior management.

5. Doctrine based thinking

The only argument for concentrating power on a few hands is the assumption that they no best and are best equipped to manage the company. When this becomes the case there is no real reason for seeking information or advice outside the power structure. As people are isolated from the real world doctrine based group think starts to kick in. Decisions are based on assumptions that might have been true once but never gets revalidated. It is particularly dangerous if it gets combined with short term financial results that can give the illusion that all is well. Short term results can be made by stealing from long term results.

6.  Strategies that benefit few

If a politburo structure enters a company so does entitlement. As the power circle constantly reinforces their own importance the companys strategy turns to serving the few that matters. In strategy creation the interest of other stakeholders will start to be underserved to give to the few. Starving customers and employees can create short term results and with that the illusion of success. When CEO’s make more than 500 times the pay of ordinary workers, it is a sign that the company has started to serve the few. These strategies are rarely sustainable in the long haul.

7. Central planning structure

The Politburo owns all the money and need to concentrate resource allocation and planning to a central point. The focus turns from investing in new equipment, people and in new business opportunities to a focus on efficiency. More effective P&L or Balance sheet control of business units is replaced with a micromanaged central structure where everybody has to make endless request to just get the minimum for the business survival. It is a great way of starving the business at the same time as being able to blame the individual units of not contributing.

8. Policies are designed to limit people, not enable them

The bureaucracy shows its face once the company’s policies turns from guiding the people to starting to control and limit them. Policies will move from enabling everybody to be a mean to only protect the company interest and money. When the health and safety policy that should be designed to protect the employee turns into a 50 page legal document that describes what will happen to an employee that does not follow the rules – then you know you have turned into an old communist country.

9. Staff functions transform into secret police

When policies change to protect the company, a similar change can take place in the staff functions. Originally designed to support the business with financial, people, legal and IS support the staff functions start to control, check and report behaviour that can be deemed dangerous to status quo. They start to resemble the security police in the old communist states. This has a significant impact on employee engagement and instead of seeking new ways of doing things and creating value, employees gets trained into low profile, low risk behaviour. Don’t spend any money, do make any requests and don’t challenge status quo.

10. Lack of engagement kills productivity, initiative and innovation

When employees understand that they are not encouraged or rewarded for taking initiative, learning and experimentation stops. Productivity growth will start to decline compared to high engagement organisations although it can be hidden by the results created though starving the company. With the concentration of information, a focus on low risk behaviour and low employee engagement – innovation will stop. Innovation can only happen if people are allowed to challenge status quo and the doctrines of the corporation – this is one of the key reasons the old communist countries did not survive.

If your company share some of the characteristics of an old communist country it might be a reason to start looking for healthier doctrines that enable employees and engage customers. 

You cannot run a 21^st century company based on 20^th century management principles.

Why corporations love delegation and are scared of Empowerment

Not only does empowerment of employees take the load of the task away from managers, it also takes the load of the decision away, making the role of the manager much easier. The time the manager does not have to be in the operation, she can work on the operation – improving it.

Having more decision power closer to the customers and the employees create a more agile organisation that can respond to rapid or local changes without HQ being awake.

Decision power and responsibility is a powerful motivator that significantly increases Employee Engagement and through that increases customer engagement and financial results.

Most employees also tend to grow capabilities faster when trusted with decisions rather than being locked in a training room for mandatory compliance training. So how come many companies don’t really deploy empowerment?

So why don’t organisations embrace Empowerment?

Many organisations now see themselves as values based. This should in principle means less rules and higher ability for the individual contributor to have responsibility and decision power over what they do. Often in the same companies there are more rules than ever, often camouflaged as a need to meet governance, compliance or to lower corporate risk. Many of these rules are created to protect the organisation against potential actions of the individual employee - a strange concept indeed. 

Decisions are concentrated around a few select senior managers and delegation trickles down the organisation in a way that often is counterproductive to what individuals and departments are trying to achieve.

In these organisations it looks like control and hierarchy is more important than making the company great and able to create value. There are powerful forces that make it so, as senior management is always benefitting from status quo.

Their operating logic dictates that highly paid individuals knows best and needs to decide. While this might be true it completely disarms the organisation and lowers the engagement of the entire organisation. This can become a threat for the survival of the organisation. People without engagement stay and get their pay check but they are not motivated and do not contribute.

The direct manager

When divine decision does not create the intended greatness the spotlight is on the middle manager responsible for the implementation close to the employees. Creating an environment that punishes only increases the middle managers need for control and somebody to direct the blame to.

At the same time, it has become so popular to coach that managers call everything they do and have always done for coaching. Reality is that most managers are still coaching for compliance: Trying to manipulate the employee into what the corporation thinks is the right behaviour.

Delegation is a great tool if it is more important to stay in power than to create a great company and all stakeholders should analyse if their company has a delegating or an empowering culture. This is likely to determine their fate.

Seek companies with an Empowered Culture

Are you still involved in skilled based recruitment?

For many years through the industrial and knowledge age, skills have been imperative when recruiting people. Are they capable of operating the right machine or be part of the right department. However work is changing and people are now entering corporations with a job title that are not likely to survive many years – we don’t even know what will be needed a few years from now. Marketing has gone from paper and television to online and mobile at a blistering pace rendering the entire skill base obsolete. The same thing is happening in sales, where customers has access to more information than the salespeople and are capable of identifying the best deal without even calling.

“Companies are running 21st-century businesses with 20th-century workplace practices and programs.” Towers Watson

Need for specific skills are changing at a rapid pace.

If the obsolescence of skills is accelerating, it does not make sense to hire for skills alone anymore. A better way is to combine skills with attitudes and behaviours when recruiting. Define the attitudes you want in your company – they are likely to interact with your values and culture and the basic belief system your company is based on. They should also be the first evaluation process that existing and new people are evaluated against as attitudes are hard to change. A very imortant point is that the attitude of an employee is going to decide if your culture and operating logic is able to create engagement - a key element of motivation.

"Getting an employee with the right skills is not the same as getting a motivated employee"

Secondly it is needed to look defining the behaviours you want. On LinkedIn it is possible to get a good idea of behaviours of a candidate that can be explored through the interview phase. Even though you would like certain behaviours it is more important to look for the potential of behaviour you would like to have in your company as behaviours can be coached.

Skills should really have the last priority and you need to be looking for the potential to acquire the necessary skills and the ability to acquire future skills. Whatever you are looking for right now is going to be obsolete faster than you can believe.

Pulling it all together will help you identify your high performance A Players that exhibit the desired Attitudes, Behaviours and Skills you are looking for. B Players that have the potential to become A Players and finally C Players that does not have the potential.

Using the 3 Gate process will ensure that you get the right potential people into your organisation but not that they are motivated and engaged. Engagement is an emotional relationship between the employee and the company that the company is responsible for creating. It is not a characteristic of the employee.

"With high levels of engagement, firms can see revenue growth 2.5 times that of their peers and a 40 percent reduction in expensive staff turnover" HayGroup

Golden Circle Strategy Development

Golden Circle Strategy Development

Does your company have a strategy or does it only have a strategic goal? This simple question can reveal the strategic thinking process in an organisation. In some companies strategies starts with defining a number that will generate a nice bonus for senior management and a number that will preserve status quo. The number is carved up into business unit numbers, into group numbers and eventually into individual numbers. From that a myriad of actions plans are developed in support of the divine number and execution starts. Exceeding numbers will be rewarded, failing to meet numbers punished - a strange kind of logic given the strategic goal often is the result of wishful thinking. Selecting the divine target number did not change anything in the company or its competitiveness.

Defining Strategy

Although many different definitions of strategy exists, there is consensus that Strategy is about the future, it is about winning and it is about creating sustainable competitive advantage. The financial goal is not a strategy - it is an outcome of a strategy. So the key strategic question is not how much, the key question is why.

The relentless focus on financial return to shareholders has resulted in many companies forgetting why they exist? Why the where founded in the first place. This purpose of the corporation is focused on creating value for one or more of the corporation’s stakeholders. When this purpose is forgotten and not honoured, the corporation loses a significant source of motivation, not only for employees and customers but also for other stakeholder groups.

Simon Sinek’s golden Circle

The best communication strategies to stakeholders are using Simon Sinek’s golden circle: People don’t buy what you make, they buy why you make it. Communication should be created from the inside out of the circle.

Rather than using communication and marketing to create a favourable (but often distorted) image of the corporation to persuade customers to buy, it is better to change the corporation into the desired image.

Leaders should spend less time creating a favorable image of their corporations and more time transforming the corporation into that image.

A useful way of creating a strategy that will be easy to communicate to all stakeholders is to use the Golden Circle for strategy development.

Start with “Why”

It is important to start the process not by focusing on shareholders or value for the corporation - nobody will buy from you just to make you prosperous.

The most important element of the strategy is to try and answer the Why question. Why do you exist?  What is the purpose of the strategy? What kind of value will the strategy create for what stakeholders? If many stakeholders can benefit from the same strategy you have what Tom Gardner of the Moetly Fool calls a super-aligned strategy and what he has identified as resulting in superior returns. If you believe that you can create value for others and be able to monetize it above and beyond cost – then you have a viable strategy. The viability analysis has to be late in the process or you will limit your thinking. You can also choose to ignore viability which Google is known for doing: Make it radically useful and we will figure out money later.

The “How” is going to important for implementation

The next stage of the strategy development has to have a high degree of focus on implementation. Most often senior managers go to a nice place and pull the plug to the world while they develop a boxed plan that later will be presented to the stakeholders. Most people don’t enjoy being told without the ability to influence so not surprisingly most large strategies fail to deliver the intended results. How you develop the strategy is going to be a lot more important that what you actually do. Open up the dialogue to a significant stakeholder groups and allow their representatives to be part of the strategy development, this will ensure that even if their needs are not met, they at least feel heard. Expanding the group will also increase the expertise that the possibility of a more innovative strategy that create value for more stakeholders at the same time. The participants will keep their groups informed and act as ambassadors. You will also be warned about what could be unacceptable to stakeholders and avoid potential trouble. Being part of something creates significant engagement.

“Don’t confuse people’s resistance to change with their resistance to be manipulated.”

The “What” - what you are already doing well.

Delaying the normal wolf pack fight over prey or organisational development as some like to call it will increase the probability of a successful strategy and implementation. You cannot remove managers beliefs that they need to have most power, assets and people reporting to them. However if the why is crystal clear and many representatives has been involved in the process, it is much less open for interpretation. The strategy will also have many fans that can help take corrective actions should it be hit by unforeseen trouble.

Innovation - Create the primordial ooze. Chapter 6 of "How Google Works"

Google’s approach to innovation is different from that of Apple – focus is on being open and collaborating like the android ecosystem versus Apples closed IOS infrastructure. Even though there are competition and legal battles, Apple is not seen as the arch enemy and there are possibilities of cooperation.

Innovation is not giving people what they want – that is being responsive. An innovation has to offer both new functionality and surprise. An innovative product should not only be useful, it should be radically useful. It could also be many small incremental improvement steps that together makes a product like the search engine of Google radically better every year.

The Google [x] approach can be seen in diagram below

Google looks for the right context for innovation and prefers high growth areas with plenty of competitors – they are not looking for empty spaces.

Innovation is not something you can organise yourself into. You cannot tell people to be innovative – you can allow them to be innovative. It is not a process rather it is a lack of process. Google has a view of ideas that each compete for survival in a Darwinistic innovative environment.

Not only are people allowed to innovate – they are also encourage to be followers of innovative ideas as all successful ideas needs followership.

“Focus on the user and all else will follow” is also an important guidance in innovation. Many projects do not have a formal financial analysis as part of the decision process – if it benefits the user it will eventually turn into revenue. Some of the innovations Google has implemented has actually hurt revenue short term but the belief is that it benefits long term.

Google differentiate between users and customers and contrary to most companies they side with the user when there is a conflict between the two.

“You aren’t thinking big enough” or “think 10x” are classical Google statements trying to encourage engineers not to limit themselves when thinking and innovating. Google are trying to improve things 10x not 10%. This creates huge ambitious projects that attracts great people and is too important to fail. Interestingly that increases it success rate versus small projects that does not affect the corporation’s survival. Apple is a classic example – they could not afford to have the iPhone fail as they only had few very important product lines – any problems affect survival and that gets maximum attention.

Although Google funds and protects risky projects they also limit resources available as they believe this limitation actually increases creativity. In Marissa Meyer’s words: “Creativity loves constraints”.

Not stigmatising failure in Google is important – to innovate you need to fail well . Many quotes exemplify this philosophy:

“If you are thinking big enough, it is difficult to fail completely” Larry Page

“It helps to see failure as a road, not a wall” Scott Adams

"If everybody has to think outside the box, maybe it is the box that needs fixing" M. Gladwell

“Good judgement comes from experience, experience comes from bad judgement” Mulla Nasrudin

At the same time Google does not believe in sunk cost and are ready and willing to kill projects without killing the participants – also failed projects are a path to promotion.

“When achieving success requires multiple miracles in a row, it is probably time to call it a day." Regina Dugan & Kaigham Gabriel

Decisions – The true meaning of consensus. Chapter 4 of "How Google works"

Google’s decision to enter China was easy from a business perspective but much more difficult when using the “Don’t be evil” indicators. When present in China Google sometimes experienced that their traffic where completely rerouted to Baidu – their filtered search competitor in china. Even though Sergey Brin was against entering China, the decision was made. The idea was to work inside China to change the system of censorship so Google informed the user when censorship happened. Surprisingly many censorship requests from the government was made against sites that where not illegal according to Chinese law. When Google later came under a very serious hacker attack from China that targeted Gmail accounts – especially from dissidents, the decision was reviewed. Google decided to leave. For leaders, decisions are when the hard work begins. Google’s approach to decisions is that it is not sufficient to take the right decision. The process of decision making, the timing and the way it is implemented is just as important as the decision itself. Even though the decision in reality has been taken, it is important to hear people out and respect their opinions.

Decision that used to be made based on opinions and anecdotal evidence could now be made based on data. Google’s don’t seek to convince – they seek “ let me show you” with data. Those closest to the data are normally best equipped to make decisions and management should let them.

Google don’t believe in supporting decisions with a myriad of financial KPIs , Eric Schmidt is known for stating “Revenue solves all known problems.” Google are against what they call “Booblehead yes” or the “Novell Nod” which is agreeing in public but undermining afterwards. It is not about getting to consensus or yes – it is about getting to the best solution that everybody wants to rally around.

Decisions should be inclusive, cooperative, equal and solution orientated. “Be interested in finding the best way, not in having your own way” Coach Wooden. Deadlines are important – especially with incomplete information. In a deadlock it is the responsibility of the most senior person to make the decisions – a bias for action. Eric Schmidt uses the PIA rule: Patience, Information, Alternatives to help make decisions.

In Google it is know that smart arguments do not convince people – to convince people you need to touch their hearts. This they call the Oprah Winfrey rule. In Google this is done by ending arguments or discussion with “You are both right” to acknowledge the input and value from everybody. Once a decision is made it is important that people are able to “Disagree and commit”. If this is not possible people have to escalate the issue in public and state why. This removes a lot of dissent.

Well run meetings can be very effective. Google has a number of rules to ensure effectiveness: An owner with hands-on experience of the topic, not a matter of being important, easy to kill, manageable in size, time kept and participants involved.

Google needs lawyers like all other companies – but they do not need lawyers like most US corporations are employing: Backward looking and risk adverse.  Instead they are using what they call “horseback law” where lawyers are expected to ride in like a cowboy in a western movie, access the situation and do something or leave. Most of the time simple advice is needed rather than a full 50 page legal brief.