Monday, August 30, 2010

Hire Trustworthy People . . . Then Trust Them

"Every knowledge worker in a modern organization is an 'executive' if, by virtue of his position or knowledge, he is responsible for a contribution that materially affects the capacity of the organization to perform and to obtain results." - Peter Drucker

What would happen if you offered your employees an unlimited number of vacation days?  Could you trust that people would not take advantage of your generosity?  Would work still get done?  As crazy as it may seem to some, DVD and movie rental company Netflix did just that and, by every indication, it's working just fine.

According the a story in the August 14 edition of the Telegraph [LINK], Netflix stopped counting vacation days for its salaried employees back in 2004.  Reasons given for the decision include the fact that employees regularly spend personal time (e.g., nights and weekends) handling company-related issues and responding to email.  Also, since hours worked per day were not tracked, leaders decided it didn't make sense to track vacation time either.  These are logical reasons, but I believe it comes down to something much simpler:  Netflix hires trustworthy people and trusts them to do their jobs.

It's About Company Objectives, Isn't It?

Many managers forget that it's more about quality of work than quantity of hours that determines the value of an employee.  If an individual is getting his or her job done, and is successfully contributing to the company's objectives, it doesn't matter how many hours or days is spent in the office.  For some reason, though, we tend to think that if people are not putting in 40+ hours per week, they are not valuable to the company.

If a company is effective in recruiting talented and trustworthy team members who fit into the culture, it does not need tight policies and controls.  In fact, the tighter the controls, the less effective creative and energetic people tend to be.  When expectations are clear and barriers to success are removed, people regularly surpass objectives.

The Importance of Culture

Netflix developed a presentation to describe their culture that is widely available on the internet.  As I read through the presentation - all 128 pages of it - it became clear that Netflix leaders understand the type of company they want to be and work tirelessly to develop - and protect - their culture.  The presentation, titled Reference Guide on our Freedom & Responsibility Culture, is worthwhile reading for anyone in business.

It's the Overall Approach - Not the Perks

Applying the Netflix formula for success does not mean copying what is in the presentation.  Unlimited vacation days only works because it is a component of the company's total approach to business.  It means taking care of the things that give direction and inspire people to act.  These include:
  1. Understand the Purpose:  Clearly understand why the company exists - i.e., who the customers are and what value customers get from doing business with the company.  Make sure that decisions and actions support the purpose;
  2. Set Direction:  Establish a vision for the future that inspires and excites people to make the company successful;
  3. Develop the Culture:  Don't let the culture happen by accident.  Create an environment that will make people, customers, and suppliers proud to be associated with the company and want to make it successful.  Once the culture is established, vehemently protect it from the internal and external forces that can change its characteristics;
  4. Hire Correctly:  Recruit the type of person who will thrive in the company.  Put more focus on finding someone with the right cultural fit than the correct technical qualifications and consider every hire from the perspective of bringing in someone who will be personally successful while contributing to the long-term success of the company;
  5. Develop Individuals & Teams:  Improve the ability of individuals and teams to be successful.  Provide learning opportunities for everyone to assure that organization continually develops.  When possible, develop future leaders from inside the company rather than hiring from the outside;
  6. Get Out of the Way:  Stay visible, but let people do their jobs.  Get involved when situations call for coaching and development and remain focused on leading, rather than managing, people.
Virtually every company wants an innovative and energetic workforce but very few know how to make it happen.  It comes down to taking care of the basics (above) and trusting the people you've hired to do their jobs.  You can hire highly talented and qualified people but micromanagement and tight controls shows a lack of trust and leads to a group of people who are uninspired and indifferent about the company's success.

Back in 1997, very few would have thought that a tiny startup from Los Gatos, California had a chance to supplant the mighty Blockbuster in the movie rental business.  As the people at Netflix have proven once again, though, the ability to unleash the talents of people is the most significant competitive weapon a company can have.

Monday, August 23, 2010

Staying Humble & Successful

Arrogance diminishes wisdomArabian Proverb

One of the critical but rarely addressed challenges facing a leader of a highly successful company is how to keep people hungry.  It is human nature for a group of people to feel invincible when they have experienced success for an extended period of time, and it is the incumbent upon the leader to fight the urge and keep the team humble.

Signs that a company is beginning to develop a superiority complex can include any of the following:
  • ignoring customer input when developing new products and services;
  • a drop in improvement activities;
  • increased costs through quality problems, longer leadtimes, and higher warranty expenses;
  • a noticeable decrease in the willingness to learn by team members.
There have been some highly publicized examples over the last several years of companies that fell from grace because they seemingly lost touch with what made them successful in the first place.  The biggest problem with this type of behavior is that a decline in revenue and earnings may not show up for years after arrogance has made its way into the culture, and by the time it is realized, it may be so ingrained that correcting it becomes a major effort.

Prevention is the Key

Like many business issues, the best way to address organizational arrogance is to prevent it from occurring in the first place.  Although sometimes difficult, taking positive steps to keep people humble and focused on satisfying customers is critical to remaining successful.  Some of the areas to address include the following:

Customer Focus:  Stay focused on the customer and coach people when they appear to lose sight of the customer's needs.  Question decisions and plans to assure that they were made with the customer's needs in mind.

Purpose - Purpose - Purpose:  Assure that the company continues to operate in a way that supports its fundamental purpose, including mission, vision, and values.  Look for signs that the mission is becoming unclear or changing and, when necessary, take action to get it back on track.  Although scaring people is not advisable, it is important to make sure that everyone realizes that the company is always vulnerable and letting up is never an option;

Continual Improvement:  Make certain that improvement activities within the company never stop.  At no time should people believe that a processes and systems are perfect and do not need improving.  A telltale sign that improvement activity is waning is arrogance toward other divisions or companies.  When people no longer feel they can learn from others, it's time to act.

Although seemingly simple, actions to keep the company humble and believing that overconfidence can be destructive is an ongoing and sometimes complex responsibility of leaders.  Companies are constantly looking to exploit weakness in competitors, and if your company has been the superstar in the industry for many years, the spotlight will be especially bright on you as others look for ways to take your place at the top.

Wednesday, August 18, 2010

The Value of Healthy Employees

Why are exercise facilities, preventive care, and nutritional counseling considered perks?  We tend to treat these things as if they only benefit the employees and represent nothing more than additional costs for the company.

Consider the following:
  • According to a story in the May 7, 2010 Wall Street Journal (link), it is estimated that obesity-related health issues will cost U.S. businesses almost $43 billion this year;
  • A recent article in Fortune magazine stated that Americans will miss an estimated 6 million workdays in 2010 due to allergies compared to one million in 1995.  Medical expenditures related to allergies during this period have also risen from $4 billion to $17.5 billion.
If you add to this, the costs related to other health issues, I'm guessing the amounts would be staggering.


Although some companies offer wellness programs, most do not. The reason many ignore the issue may be that, although high on a national level, the direct costs (including sick pay and increased insurance rates) are not high enough in individual companies to justify such a program.  And since the indirect costs are not measurable, they also do not justify the investment in wellness.

This is the problem.  The costs of implementing a wellness program is easy to measure and will appear as expenses on the income statement.  The benefits, on the other hand, will not directly show up anywhere and therefore cannot easily be justified.  Besides the fact that there will be a delay in receiving the benefits from improved employee health, there is no way to directly tie an improvement in productivity, quality, or costs to the investment in wellness.

Although not directly measurable, the benefits of an effective wellness program can include the following:
  • Productivity:  Reduction in productivity losses caused by presenteeism (not feeling well at work) and absenteeism (paying for a worker to stay home plus the inefficiency related to work being performed by someone other than the missing employee);
  • Motivation:  People feel more valued when the company shows it cares about their health.  As a result, motivation, along with dedication from employees increases;
  • Creativity:  People need to feel relaxed and healthy to be creative.  The endorphins that result from regular exercise have been shown to increase creativity while, conversely, the distraction caused by illness decreases it.
The decision regarding the implementation of a wellness initiative comes down to whether or not the company's leaders believe that the above benefits outweigh the costs of initiating and maintaining the program.  Even if they do believe in the benefits, leaders must also commit to an ongoing expenditure that the accounting system will not show adding value.


I have spent much of my career dealing with organizational change associated with the achievement of strategic initiatives.  In doing this, I have always found that, whether talking about implementing lean, integrating an acquisition, or changing an ERP system, the process is much easier when people are relaxed, well-rested, and feeling healthy.  In my experience, companies that offer extensive wellness programs tend to have much more positive energy around a change initiative.

A wellness program can start small and expand as leaders gain confidence in the resulting benefits.  Initial steps can include any of the following:
  1. 24-hour nurse line for people to call with questions
  2. Annual physicals/health screens
  3. On-site immunizations
  4. Nutritional counseling
  5. Improved food choices at employee cafeterias
  6. Exercise facilities or health club memberships
  7. Newsletters with health coaching tips
  8. Support for smoking cessation
  9. Reward programs for health improvement/maintenance
  10. Stress reduction at work (meditation, yoga, etc.)

We have got to get past the idea that the return on every investment can be measured.  As I have written about extensively in my book and in blog posts, there are many critical aspects of leadership where one has to understand the cause and effect relationship between an investment and the resulting benefits, even if it is not represented in the financial statements.  After all, if management involved nothing more than making decisions based on numbers, it would be a much easier to do and pay a lot less.

Monday, August 9, 2010

The Smarter Company

When discussing the most innovative and successful companies over the last decade, people will most likely mention names like Apple, Facebook, Google, or RIM.  These companies are known for utilizing innovation in products, processes, services, and technology to give them a distinct advantage over their competitors.

But how do these companies maintain their edge?  Are the people who work at Apple or Google really any smarter than those who work at other organizations?  It's no secret that these companies have their pick when it comes to recruiting, but is that what keeps them more innovative and profitable than other companies around the world?  In my opinion, yes . . . and no.

It Takes More Than Talent

I will never downplay the importance the talents of people to a company's success.  Companies like Google and RIM are staffed with very smart and talented people which has undoubtedly helped them to introduce highly successful products year after year.  But without the leadership, culture, and systems that encourage and support innovation, there would be no way to consistently turn the ideas of these people into commercially viable products.

I have worked with a number of companies throughout my career and met many highly talented people who, for a variety of reasons, were unable to utilize their talents effectively.  In contrast to companies like Apple, the cultures and systems in many of the companies for which these people worked interfered with their ability to use their creativity.  The really sad part of the story is, the longer this went on, the less the people were willing and able to be innovative.  It's as if the ability to innovate atrophies when not used or developed over time.

It's the Company that's Smarter

The difference between the average company and a company like Apple, for instance, is that the leaders at Apple understand that innovation is a key to their success and they've created an environment that encourages creativity.  They have remained focused on creating a culture that fosters the use and continual development of team member creativity, and aligned systems to quickly turn their ideas into products.  In my opinion, this makes Apple a smarter company than most.

It is strange to think that a company would hire someone because of their talents and allow barriers to exist that prevent the person from utilizing these talents, but it happens fairly often.  It's not intentional, but for a variety of reasons, the environment in many companies encourages behaviors that interferes with success.  Mismatches in purpose, strategies, and values lead to confusion, frustration, and de-motivation of employees, interfering with sustained levels of success for the company.

Becoming Smarter

So how do leaders make their companies smarter?  How do they create the type of environment that enables people to utilize and develop their talents in a way that leads to success?  It obviously depends on a company's particular circumstances, but involves addressing one or more of the following areas:
  • Purpose:  Be clear and consistent on the company's fundamental purpose.  Why it exists, what need it fulfills for its customers, and why it is different than other companies that serve the same markets;
  • Strategies:  Determine, clearly communicate, and implement the best way for the company to compete in order to be successful (i.e., achieve its purpose).  Will it compete on the basis of innovative products and services?  Low costs?  High quality?  Assure that the company's culture and systems are aligned with the chosen strategies;
  • Values:  Identify the company's personality.  Be very clear on the DNA of the type of employee who will make the company successful in the achievement of its purpose;
  • Hiring:  Take time to hire the right people with heavy emphasis on a person's fit within the organization's culture.  Make sure that, once hired, they are able to utilize their talents effectively;
  • Train/Develop People:  Continually develop the collective skills of the company's team in support of its business strategies;
  • Foster Teamwork:  Identify and remove the barriers to teamwork on a continual basis in order to get the organization acting as one and focusing on common objectives;
  • Value & Respect People:  Assure that people feel respected and valued for their contributions to the company's success.  Create systems and develop leaders that will encourage participation in the achievement of objectives:
  • Continually Refine Environment:  Develop and refine the company's culture to assure it is aligned with business strategies.  Assure that the environment encourages, rather than hinders, implementation of the strategies.
I don't believe that a company needs to be innovative in order to succeed.  It is much more important for a company's offering to be "right" than "fast."  With that said, however, the faster a company can offer a new product or service that is right, the more successful it will be.  Determining the strategies and assuring that all internal systems and values support the implementation of the strategies will make the company smarter.

So to answer to the question:  I don't believe that the people at Apple or Facebook are any smarter than those at other companies, but I do believe that Apple and Facebook are smarter than other companies.

Monday, August 2, 2010

Finding the Right Mix of Talent

Success in Business Requires a Mix of Generalists AND Specialists

Most people understand that businesses need specialists in order to be successful.  Having people with specialized knowledge in areas related to the company's products, services, processes, network infrastructure, etc. enable the ability to serve customer needs on a continuing basis.  What many people don't realize, however, is that it is just as critical to success to have generalists in the organization.

What is a Generalist?

A generalist is someone who has broad knowledge and skills, and understands the organization's high level system, including the hand-offs and interactions between people and processes.  A generalist is not interested in working and developing his or her skills within a single area and is much more motivated to focus on the big picture.  He or she is much more comfortable learning a little about many subjects than learning a lot about a single subject.

An organization can have the most talented specialists in the industry but be completely ineffective if these people are not able to agree on what's important and work together to turn their combined talents into commercial success.  By understanding the system, the generalist can bring significant value to the organization by focusing on overall company performance rather than spending time attempting to optimize any single function.  For this reason, generalists often excel in leadership positions and cross-functional roles like project management and lean/six sigma facilitation.

Why Generalists Are Necessary

By understanding the company's high level value stream, the generalist is able to continually remind everyone of the importance of working in the same direction to achieve common objectives.

No matter how talented the specialists are, without a common direction and continual effort to improve the way people interact and work together, there is no "organization" - there are only individuals working on what each feels is most important.

Peter Drucker wrote that management is a liberal art in that it requires skill from many different disciplines including psychology, sociology, history, and others.  W. Edwards Deming included psychology, learning, theory of variation, and systems thinking as components of leadership in his Theory of Profound Knowledge.  Deming and Drucker were referring to the idea that management is a role for generalists.

Harnessing the Company's Talent

The obsession many companies have had with specialists over the last several years has created a shortage of generalists that is hampering growth and success.  As a result, many companies are full of great ideas and new technologies but aren't able to transform them into commercially successful products and services.  A company may be staffed with highly skilled scientists, engineers, and chemists, but if it is not turning this knowledge into viable products or services, it is wasting money (and talent) and compromising its future.

Whenever hiring or promoting someone into a leadership position, I have found that a person with a varied background tends to be more effective than someone whose experience and training is related only to the function the person is expected to lead.  For example, I would tend to favor a candidate for a quality management position who has experience in procurement and/or manufacturing in addition to quality than one who only has quality experience.

It's in the Mix

Success in business requires leading people to consistently achieve high level objectives.  To do this successfully requires respecting the different talents people have and understanding how best to position and organize everyone to serve the customer effectively.  This means having the right mix of generalists and specialists to assure success.