Why is that successful and well-managed companies struggle with change and disruptive innovation? Too often, what got companies to where they are now, isn’t what will get them to the future. Established organisations continue to do the same things, in the same way, every day, that they don’t realise that these habits no longer translate into future success. Over time, their focus morphs into managing risk, rather than managing potential opportunities. The fall out is accidentally managing themselves into brand oblivion.
Lots of well-known company brands have either failed to embrace disruptive business models or maintain their once disruptive edge. Why didn’t taxis see Uber coming? Why didn’t Moccona recognise the change in retail consumer demand for coffee and develop a Nespresso style coffee capsule machine? Couldn’t credit card companies have kept Afterpay at bay by focusing on making income from retailers rather than consumers?
The answer is ‘no’ because incumbents tend to feel satisfied with their business models. As Jim Collins, the author of Good to Great says, these companies are often led by leaders who assume their past success entitles them to future success. They tend to focus on making incremental gains through process improvements rather than make big changes to their business model.
Of course, it’s much harder (and scarier) to change business models. That’s because the leadership team that got the organisation to where it is now is either not skilled enough to spy new opportunities or deliver on the new customer promise. One of the reasons is that leadership is focused on measuring the wrong results.
The Future of Work: Outcomes
For many years, business leaders have bought into the belief that business is all about numbers. Organisations and leaders spend a lot of time setting up systems to measure external outputs. They determine how the organisation is performing by measuring sales, return on investment, cash flow, share price and so on. While this data is important, they are by-products of past performance that have limited impact on future performance. Focusing on them alone is a bit like a bikini.
They hide what is most revealing about the organisation. And that is what activities the people in the business are doing to support future growth. After all, business is really about people, not about financial results. Numbers don’t run a business – people do. Numbers can’t make decisions, products or execute a vision. Measuring external outputs is very different to measuring internal productivity.
Take Apple. Critics are quick to lampoon them when their revenue remains static. Tim Cook, the CEO of Apple, knows too well the folly of market commentators who have judged Apple recently on their financials, rather than appreciate the deep R&D process that is hidden in the background.
“When we were idling from a revenue point of view – it was like $6 billion every year – those were some incredibly good years because you could begin to feel the pipeline getting better and better, and you could see it internally. Externally, people couldn’t see it…Over the long haul, you just have to have faith that the strategy itself leads to financial results and not get distracted and focus on them. Because focusing on them doesn’t really do anything. It probably makes the results worse because you take your eye off what really matters.”
Tim Cook, CEO, Apple, Interview from Fast Company, April 2018
For Cook, business is about people and products. What’s most important is how people are pulling together in Apple to create products customers will love, in order to create future best sellers.
“Stock price is a result, not an achievement by itself. For me, it’s about products and people. Did we make the best product, and did we enrich people’s lives? If you’re doing both of those things – and obviously those things are incredibly connected because one leads to the other – then you have a good year.”
Tim Cook, CEO, Apple, Interview from Fast Company, April 2018
The reality is that future work will be measured by outcomes, not outputs. Outputs are a relic of the industrial age that were important to drive efficiencies when you had a factory. Back then, monolithic teams toiled in a hierarchical structure that was heavily process driven and predictable. Decision making was centralised and employees were poorly educated and not expected to think for themselves.
Today, the world of work involves highly educated employees working in nimble teams to solve complex problems and make decisions. Results take longer to achieve. It requires leaders who can trust employees to do the work based more on achieving outcomes rather than clocking in and out at a certain time each day.
When it comes to teamwork, measuring external outputs is easy. It’s about how many widgets staff are producing. The team might have a couple of tasks to complete each day such as produce and pack 150 products or complete payroll. When tasks get accomplished, the team can see the result immediately. Checking off tasks on a list is rewarding and even a little bit addictive.
But the outcomes that the team are trying to achieve are harder, often frustrating and need more time. It’s not about how many widgets staff produced, but how well they made them together. Examples of outcomes include improving customer usability or increasing collaboration between sales and manufacturing. Outcomes or inputs are lead indicators that highlight future performance. They take time to solve and it relies on two types of trust – faith that the strategy will work or trust that the team is doing the work to get there in the end.
Moving Away from a Bottom Line Mentality
When managers are pressured to reach performance targets and control costs, they can become so focused on their own job security that they impose more control on employees. The unrelenting focus on securing bottom-line outcomes can often detract from other priorities such as developing relationships and empowering employees to contribute ideas.
A study by Zenger and Folkman researched 400,000 360-degree surveys. They found that the most successful leaders possessed a powerful combination of competencies. Sixty-six percent (66%) of leaders in the top quartile possessed both a focus on results and interpersonal skills. Meanwhile, only 13% of leaders who focused on results alone and only 9% of leaders who focused on interpersonal skills alone reached the 90% percentile. In other words, being focused on results AND interpersonal competencies equalled top leadership performance. Just being skilled in achieving results alone or even interpersonal skills alone aren’t enough.
Leaders who can focus both on results and interpersonal skills need to not only be in the right work environment to allow these behaviours to flourish, but they also have to understand that it’s no longer enough to deliver results. The future of work requires trusting employees to do work whether they are based remotely or in the office.
This requires leaders who avoid micromanaging. It means being responsible for delivering, but also letting go and allow the team to do the work they are employed to do. It also means sharing risk in a team, so that it’s just not the leader’s neck on the block. Employees also need to step up and be part of the collective results, rather than measure progress by individual merit alone (and avoiding team accountability).
Measuring outcomes involves leaders who can be flexible in achieving goals. It’s no longer a linear process of getting from A to B with small iterations along the way. It’s realising that to get to B, you might need to go down C, realise it’s a dead-end and make a pivot down both D and E to get the desired result. This is messy and sometimes frustrating work.
It requires leaders who can avoid the natural temptation to control the situation. This entails realising something isn’t working and changing direction on the fly. Rather than deciding it’s time to cut your losses because it’s not going to work (or keep going, doing the same process). It’s acknowledging that no matter how many unexpected obstacles get thrown, that it’s time to pivot and create a new way of measuring progress. We can’t change our circumstances, but we can change how we think and respond to it.
Addiction to Numbers
Walk into any up and coming startup or a company that’s gone through a big turnaround, and you will see a big electronic dashboard displaying their latest results. These dashboards are all about the process, not the product or people.
Could it be that creating efficient, repeatable and scalable business processes engineers the meaning out of work?
Business leaders understand the benefits of cognitive diversity and try to hire diverse people with different skill sets. But their well-intentioned hiring practices come undone, when they ask workers to do the same job, the same way as everybody else. Employee autonomy and empowerment gets thrown out the window.
Rules and metrics are designed to reduce errors through conformity and drive productivity through incentives and punishments. Leaders hope that being less bad will somehow make employees good. There is no room for employees to dare to dream about being great. In fact, in these engineered workplaces, an employee would have to break the rules to do something remarkable. The ghosts of an industrialised workplace still come back to haunt management – despite their best intentions.
It even looks like measuring work is more important than doing work. It’s no wonder most employees are disengaged.
While most organisations measure employee engagement, as a generalisation, few companies are really good at measuring the soft side of things (or doing anything about it). Talk to most leaders about improving their culture or building trust and they find it too “airy fairy” to get their heads around the concept. It is perceived as something that cannot be properly measured and provide a serious return on investment. Improving behaviours are thought to be hard to quantify and hard to pick.
But organisations who want to alter how people behave internally must turn their attention to outcomes. After all, everything is measurable if we’re clever enough to see if something needs measuring. To truly predict how the organisation will perform in the future, requires lead indicators that are just as vital as any hard numbers. The hidden gem within soft measurements is that achieving them often means that other unintended side benefits kick in.
For example, say a leader is encouraged to record how many times they cut people off in meetings or ask for input. The very act of being more aware of enabling team members to speak up and contribute often means that other behaviours improve. Examples include an increase in ideas that are successfully implemented that contribute to growth or an increase in overall employee engagement. The side benefits are deceptively important; often delighting CEOs and boards.
Moving to Leading Indicators
As Marshall Goldsmith says in the book, What Got You Here, Won’t Get You There, interpersonal behaviour is the bedrock, the difference maker between being great and near-great, between getting gold and setting for bronze.
To be a viable organisation really requires organisations take a good, honest look at their habits and what gets measured (and rewarded). It means looking at what behaviours are working towards opening up new opportunities, rather than protecting the organisation from potentials risks. It means pruning behaviours and activities that are working against the organisation and not for it. The only way to do this effectively is to measure behaviours based on the needs of your strategic plan and delivering on the brand promise.
Improving interpersonal behaviours can also be motivational with the right tools and support. After all, employees accept performance appraisals as feedback and are motivated to do better because of it.
In today’s low trust environment, it’s a challenge for organisations to rely on daily exchanges with customers, consumers, investors and other stakeholders. But organisational growth demands that how people interact internally changes and grows. The right answer is the ideal balance of both leading and lagging indicators that provide information on how the business has performed in the past together with how it will perform in the future. All aligned with growth plans to ensure the organisation is on track to keep reinventing, in order to delight the customer.