Tuesday, January 23, 2018

Deep Dive into In Search of Excellence

This was a go back on a classic book from my early years in program management. Written and researched in the early- to mid eighties, it actually is still very relevant today. In fact, many organizations that struggle today, like MSFC, are those that have moved away from these principles that Peters and Waterman uncovered 30 years ago. 

Peters and Waterman were consultants in the San Francisco office of McKinsey and Company, and had been studying excellence in companies. This was in the period where American business had seen great erosion of excellence. Japanese companies form autos, to appliances to electronics had made huge inroads on the domestic (and international) market share of US companies. Yet, there were still excellent companies to be found in spite of the ravages of Global competition and a stubborn recessionary economy of the 1970’s. They pursued the essential question of Why? 

There findings were summarized into eight Principles that all of the excellent companies seemed to, at least at some level, share. They are; 

7. A Bias for Action - A preference for doing something - anything - rather than sending a question through endless cycles of analyses and committee reports.
8. Staying Close to the Customer - Learning their preferences and catering to them (not themselves).
9. Autonomy and Entrepreneurship - Breaking the organization into small units and encouraging them to think independently and competitively.
10. Productivity Through People - Creating in all employees the awareness that their best efforts are essential and that they will share in the rewards of success.
11. Hands-on, Value Driven - Insisting that executives keep in touch with the organizations essential business.
12. Stick to the Knitting - They know, and stick to, what they know best.
13. Simple form, Lean Staff - Few administrative layers, few people at the top.
14. Simultaneous Loose-Tight Properties - Fostering a climate where there is dedication to central values of the organization, balanced by a tolerance of all employees who accept those values.

They found that these things were as firmly rooted in the theoretical fundamentals of human behavior, as they were counter to prevailing management norms of the day (and in many cases still being propagated some 40 years later). One interesting theoretical underpinning was from Ernest Becker. He argued man is driven by "dualism”; he needs to both be a part of something and to stick out. Becker pointed out that “what man fears is not so much extinction, but extinction with insignificance. Men fashion unfreedom as a bribe for self-perpetuation”. 

They also noted that there was a feature of excellent companies “their ability to manage ambiguity and paradox”. The problem with most of our approaches to management was they focused on measurement and analysis. They focused on a rational model approach, but completely ignored the art involved. The excellent companies were in their nature "irrational”. The excellent companies lead them to revise their tenets on size (economy of scale), precision (limits to analysis), and the ability to achieve extraordinary results with quite average people. 

Problems with the Rational Model
This was a particularly interesting part of the book to me (Chapter 2). It was obviously important to them to devote an entire chapter to it’s limitations and fallacies. They uncovered what they summarized were several significant issues, all of which the excellent companies had learn to overcome; 
1. The numerate, analytical component has an in-built conservative bias. Cost reduction becomes priority number one and revenue enhancement takes a back seat.
2. The exclusively analytic approach leads to an abstract, heartless philosophy.
3. To be narrowly rational is often to be negative.
4. Rationality does not value experimentation and abhors mistakes.
5. Anti-experimentation leads inevidently to overcomplexity and inflexibility.
6. The rationalist approach does not celebrate informality.

Man Waiting for Motivation
The central problem with the rationalist view of organizing people is that people are not very rational. In fact, if our understanding of the current state of psychology is even close to correct, man is the ultimate study in conflict and paradox. We have to deal with the the following contradictions that are built into human nature: 
1. All of us are self-centered, suckers for a bit of praise and we all think of ourselves as winners.
2. Our imaginative, symbolic right brain is at least as important as our rational, deductive left. We reason by stories at least as often as with good data.
3. As information processors, we are simultaneously flawed and wonderful. One the one hand we can hold only at most half a dozen or so facts at one time. On the other hand, our unconscious mind is powerful, accumulating a vast array of patterns, if we let it.
4. We are creatures of our environment, yet strongly driven from within.
5. We act as if express beliefs are important, yet actions speak louder than words.
6. We desperately need meaning, and will sacrifice a great deal to institutions that will provide meaning. We also simultaneously need independence, to feel like we have control, and a chance to stick out.

Many organizations fail to recognize these inherent paradoxes. They call for risk taking but punish even tiny failures. They want innovation but kill the spirit of the champion. With their rationalist hats on, they design systems that seem calculated to tear down their worker’s self-image. (My example here is a company detects an abuse by an infinitesimally small group, and cracks down with onerous policies that abuse the 99% who are trustworthy.)

The Power of Stories
A story is that little knot of connectedness which we call relevance. It is the WHY of something. Related findings include: 
1. We don’t pay attention to prior outcomes. History doesn’t move us as much as a good anecdote. We reason with data that come readily to mind (called the “availability heuristic” by Kahneman and Tversky) even if the data have no statistical validity.
2. If two events even vaguely co-exist, we leap to conclusions about causality.
3. We’re hopeless about sample size. We find small samples about as convincing as large ones, sometimes more so.
Simplicity versus Complexity
One of the key attributes of excellent companies is they have realized the importance of keeping things simple in spite of overwhelming genuine pressures to complicate things. 
1. They accept that humans are not good at processing large streams of new data and information. They have found that the most we can hold in short-term memory, with out forgetting something, is six or seven pieces of data.
2. The excellent companies focus on only a few key business values, and a few objectives. The focus on key values lets everyone know what’s important, so there is simply less need for daily instruction.
3. Excellent companies used scores of devices to keep things simple. In every instance they are ignoring the “real world”, the complex one. They are in, a real sense, being simplistic, not just keeping it simple.
4. They understand the “the mark of a true professional in any field is the rich vocabulary of patterns developed through he years of formal education and especially through years of practical experience.”
Positive Reinforcement
They took a lot from B. F. Skinner’s research into motivation they found that excellent companies more often than not had aptly applied his theories. Examples were: 
1. First it needs to be specific. The excellent companies tended to use activity based MBO systems (“Get the Rockville plant on line by July 17”) rather than financially based MBO’s.
2. The reinforcement should have immediacy.
3. The system of feedback mechanisms should take into account achievability.
4. The feedback comes in the form of intangible but ever-so-meaningful attention from top management.

Action, Meaning and Self-Control
In talking about action, the authors related a number of studies that were conducted in the mid-twentieth century that showed that getting people to act incrementally usually resulted in a stronger commitment. They referred to this as “front in the door” research” which demonstrates this. The implications of the line of reasoning are clear; only if you get people acting, even in small ways, the way you want them to, they come to believe in what they’re doing. “Doing things” (lots of experiments and tries) leads to rapid and effective learning, adaptation, diffusion, and commitment; it is the hallmark of the well-run company. 

Without exception, the dominance and coherence of culture proved to be an essential quality of the excellent companies. Moreover, the stronger the culture and the more it was directed toward the marketplace, the less the need was there for policy manuals, organization charts, or detailed procedures and rules. {on organization} The answer is that if companies do not have strong notions of themselves, as reflected in their values, stories, myths, and legends, people’s only security comes from where they live in the organization chart. The excellent companies are marked by strong cultures, so strong that you either buy into the norms or you get out. 

Finally, and paradoxically, the excellent companies appear to take advantage of another very human need - the need one has to control one’s own destiny. At the same time that we are almost too willing to yield to institutions to give us meaning and thus a sense of security, we also want self-determination. With equal vehemence, we simultaneously seek self-determination and security

Transforming Leadership
Here they drew much from James MacGregor Burns in his book Leadership. Burns identified two types of leadership; transactional, which is the necessary activities of the day, and transformational. Transformational leadership occurs when one or more persons engage with others in such a way that leaders and followers raise one another to higher levels of motivation and morality. This is all about the WHY and getting people to connect to it. This is about engaging people in a highly motivated construct to uniquely add value as only this organization can.

Managing Ambiguity and Paradox
Excellent companies know how to manage paradox. From McGregor’s theories (Theory X and Theory Y), the human relations school of management was born. The overwhelming failure of this movement was precisely its failure to be seen as a balance to the rational model, a failure ordained by its own silly excesses. Whereas the rational model was a pure top-down play, the social model became a pure bottom-up play. You pick one or the other. As a leader, you are authoritarian or you are democratic. In reality, you are neither and both at the same time. The clear starting point of their new theory was founded on acceptance of the limitations of rationality. Their new theory was based on: 
1. People’s need for meaning;
2. People’s need for a modicum of control;
3. People’s need for positive reinforcement, to think of themselves as winners in some sense;
4. the degrees to which actions and behaviors shape attitudes and beliefs rather than vice versa.

Excellent companies have figured out how to manage ambiguity. They have developed cultures that do things counter to conventional wisdom. They have figured out that “the very process by which a firm becomes most productive in an industry tends to render it less flexible and inventive”. The excellent companies understand that beyond a certain surprisingly small size, diseconomies of scale seem to set in with a vengeance. In conventional estimates of scale economies, we have vastly underestimated “transaction costs,” which means  the cost of communication, coordination and decision making. Large scaled organizations tend to forget how to learn and they quit tolerating mistakes. The company forgets what made it successful in the first place, which was usually a culture that encouraged action, experiments, repeated tries.

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