Moving from best to better and better Business practice redesign is a missed opportunity
Just scaling efficiency may no longer be enough for companies to thrive. Instead, the key may be to track the progress of work groups with a clear shared goal, say John Hagel and Maggie Wooll.
In a world that is moving much more rapidly and where pressure is mounting, high performance today is going to be lower performance tomorrow.
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Tanya Ott: Who isn’t feeling more pressure to perform these days? Maybe, the answer is right there under your nose.
I’m Tanya Ott, and this is the Press Room, Deloitte Insight’s podcast on the issues that matter to your business. And no matter what business you’re in, the landscape has changed dramatically over the last decade or so. Whether you’re making widgets or selling ideas, your consumers have more power and choice than ever before. They’re less willing to settle for standardized products and services. They want things customized. They want it fast. And it’s got to be convenient for them, too.
And guess what? They can express their satisfaction—or dissatisfaction—pretty instantaneously and globally on social media and through other channels.
With the window of time for companies to react collapsing and the number of demands on companies expanding, we all need to be looking at new ways to do things.
John Hagel: The old model was this model of scalable efficiency. The way to win was to get enough scale and become as efficient as possible at scale so that you could be the lowest cost provider in whatever market or industry you were in. And that worked in more stable times . . .
Tanya Ott: That’s John Hagel.
John Hagel: I'm the founder and cochairman for the Center for the Edge.
Tanya Ott: The center’s job is to identify emerging business opportunities that should be on a CEO’s agenda. He’s been looking into how companies are organized, along with Maggie Wooll.
Maggie Wooll: I lead research into learning the human implications of the rapidly advancing technologies and the future of work.
John Hagel: The challenge with efficiency as the primary focus for performance improvement is it's a diminishing-return phenomenon.
You can cut costs. So you cut 10 percent of your costs—great. Now try to cut the next 10 percent of the costs. You're going to have to work longer and harder to get that next 10 percent out of your cost structure. At the end of the day, there's a fixed amount of cost. You can only go so far. You can't get to zero. So you're just working longer and harder to get increments of performance improvement.
In our view, while we're certainly not saying you shouldn't be concerned about efficiency, we're also making the argument that efficiency is not sufficient—that you need to be focused on ways to create more and more value, not just cut costs.
Tanya Ott: So if that's the old model and that doesn't work as well, you've got some ideas about new opportunities and ways to really leverage the power that you have in your own workforce. You talk about frontline work groups. First of all, what is that?
Maggie Wooll: The point of looking at a work group in the first place was that no matter how smart you are, you're going to learn faster if you're collaborating with others. Particularly as we're talking about this environment where the challenges are more complex and they're changing more rapidly, any one individual is going to be way less likely to be effective at developing and delivering the types of creative solutions to address them. That was the rationale for thinking about groups rather than individuals.
The frontline aspect was really looking at where work is happening. To take it out of the management level, we're talking about the operating level. We wanted to think about smaller groups of maybe 3 to 15 people, not a whole department. We looked at sustained involvement, meaning we didn't want to just look at groups that were coming together periodically as a task force or some sort of special project. We wanted groups where the members spent most, if not all, of their time in this work group environment.
The third criteria, which was maybe the most important one, is that we're talking about people who are doing work that really all depends on each other doing it collaboratively, together, not each one owning a specific part and handing it off to the next person. This criteria maybe sounds obvious, but as we started looking at work groups, it's something that people have a hard time understanding, that the outcome could only occur with all of the work group working at each stage.
John Hagel: I'd say one clarification is that when we say frontline, I think often people interpret us as talking about customer-facing. You know, that's the front line: marketing or sales or customer service. But, no, we're talking about frontline in the sense of people who are confronting new challenges, unexpected situations for the first time. They could be in supply chain management. They could be within the IT organization if you're confronting a cyber attack. There are frontline work groups who mobilize to try to address and resolve those unexpected situations. So frontline can exist throughout the company, but it's those who are engaged with and confront those unexpected situations the first time and before anybody else sees them.
Tanya Ott: So you went looking for organizations that had work groups like this that were doing exactly what you were looking at. They were looking at these exceptions, and they were working as teams to work through that stuff. You've got some case studies—what's one of the more interesting ones you found that you thought, well, this is useful to look at?
Maggie Wooll: We talked to a lot of different organizations and work groups across a lot of different industries and sectors. One point I want to make clear is that we weren't going to just look at startups and software companies. So we really believe that these practices are not only relevant to a range of organizations and industries but [that] a lot of them are already being used in a variety of workplaces.
For example, we looked at Royal Caribbean Cruises. They have the new build and innovation work group that brings together this huge variety of people from architectural designers, naval architects, technical experts, and finance specialists to create these ships that will define the experience for the next several decades for their guests. A couple of the practices they do that fit with kind of what we're looking at is they maximize the potential for friction and cultivate friction—which essentially means they're bringing together a greater diversity of perspectives around their design and implementation ideas to make sure that they aren't just replicating the status quo or making a few incremental improvements. They really want to be pushing boundaries, and individually no one is going to be pushing boundaries that way. So they'll bring in builders from the shipyard or from outside industries like casinos and airlines all to keep testing and pushing against and building on these ideas they have.
Tanya Ott: I was really fascinated with that idea of creating friction or encouraging friction because I think some people might hear that and go, well, that sounds like fighting, and how productive is that? But you spin friction as a real positive. As a matter of fact, it's kind of a key to what you think makes these work groups effective. So let's dive a little deeper into that. First of all, you've defined what you mean by friction, which is basically bringing people from lots of different backgrounds together so that they can be throwing ideas at each other and pushing back on other people's ideas. But are there game rules for creating friction? How do you do that without having problems?
John Hagel: Certainly a key piece is finding diverse people and bringing them together. But one of the things we find in a lot of corporate cultures is you bring these diverse people together, and then you put them around the table and you ask them all to agree and basically align around the party line, if you will, versus creating an environment that actually encourages those diverse people to come up with creative different ideas and challenge each other. And so it is maximizing the opportunity from that diversity.
But the other piece to it is creating an environment where there's mutual respect. Where people are challenging each other not to put each other down but to come up with an even better idea, a better way of responding, or an approach to a problem. And they're recognizing that they're all driven by that same objective, which is to come up with an even better way of handling it.
Maggie Wooll: As John said, if they are really committed to a shared outcome, then that starts helping them overcome some of that negative friction that happens. But it's all pretty interrelated because the way we're managed as individuals often also encourages people to maybe not be as open to being challenged by others on a team. There's a sense of self rather than a commitment to a shared outcome that can override our ability to really be challenged and to challenge others in a productive way that actually gets at better results.
The one practice they all shared was commit to a shared outcome. So in some ways, what ends up being key for them to really start taking off is that they do have to have some definition of a shared outcome that they are going to try to achieve, whether that's keeping more aircraft up in the air and operational, or helping people recover from disasters, or creating more innovative products. That type of shared-outcome statement starts becoming pretty important for the work group. But as we've already alluded to, this idea of maximizing the potential for friction, which is really about bringing together a diverse group of individuals into a work group, you could also consider that being your starting place in assembling a group of people to begin with.
Tanya Ott: You mentioned the cruise line example, but you've got some other case studies as well—one of them being an appliance plant in Louisville, Kentucky, I believe.
Maggie Wooll: Sure, it was a small work group, an offshoot of GE Appliances, that essentially decided to look at product development in an entirely different way. So they formed a small group, with its own facility, that would collaboratively develop these products and use some of the different new technology platforms like crowdfunding to develop their ideas and test them in the market much more rapidly than the traditional product development process could do.
Tanya Ott: John, this reminds me of a conversation we had probably a year-and-a-half or two years ago about working on the edge and bringing the edge more into the center of an organization and the center of the organization back out to the edge, so that you don't have just this sort of exploratory group that lives out in the ether that nobody really knows what they're doing. It's really more about imbuing that into the culture. Is that sort of a fair comparison with this idea of work groups?
John Hagel: In some respects, yes. But certainly, as we went out trying to find the case studies, we found that these work groups were very much on the edge. In many cases, they weren't even recognized by the senior executives of the company.
Tanya Ott: They were just something that kind of worked there in the dark matter.
John Hagel: Yeah, yeah. But they were very effective in their particular work group even though the approaches, the practices they were developing were not shared throughout the broader company. I think the challenge is, how do you get the broader company to adopt these practices because they do challenge the core assumptions of how to run a successful business. This is not scalable efficiency. In scalable efficiency, friction is bad. Friction is inefficient. What you want is everybody aligned. So I think there are some pretty significant cultural differences that have to be acknowledged and dealt with. And our sense, ultimately, is the way to really scale this is by going to an edge and scaling that edge, not trying to bring it back into the core of the business, but find a new part of the company that is going to scale very rapidly and adopt these practices within that edge.
Tanya Ott: Can you give me an example that would make it maybe a little bit more concrete for folks when you talk about scaling at the edge?
John Hagel: Yeah. There aren't a lot of examples at this point. We think that the opportunity to scale an edge is actually only recently becoming more and more feasible because the same thing that's creating increasing pressure—the accelerating pace of change—now provides an opportunity to scale an edge, to make it very large, and ultimately become the new core company in a much shorter period of time than would have ever been possible 20 or 30 years ago.
Having said that, there are examples of companies that have successfully scaled edges in the past. One example that I like to use is State Street Bank here in the US. At least by US standards, it's a pretty old company. It was founded in 1793, and throughout most of its history, it was a conventional retail bank with branches [that] took deposits and gave out loans. But back in the mid 1970s, they started to experience increasing pressure on their margins. An executive in the bank one day came up with this idea: He says, “In our back office, we have a world-class transaction-processing capability. Why don't we rent out some of that capability to other commercial banks that are experiencing similar pressure?”
Long story short, that edge, that very small initiative, rapidly scaled because they were addressing a significant need on the part of other commercial banks, to the point where now State Street Bank is basically a back-office processor for other financial institutions. It can drive pretty fundamental transformation, but the differentiation we make is that it's not just a diversification or growth initiative. Your goal is actually to transform the core of your business. And that's a much higher objective.
Maggie Wooll: The idea is not that you see one of these work groups, and they're doing great with their practices, [so] you say, “Hey, let's do exactly what that work group's doing,” and you roll out this manual of practices back to the core organization, where you document what they do and try to get everyone to adopt that. That is very similar to trying to push the edge back into the core, and it's actually the wrong approach to propagating practices. What we want to see is these work groups on the edge that are really having success, that they grow and develop and show success, and that starts cultivating this attitude and way of working that then each part of the organization will adopt in their own way, not in any kind of standardized way.
Tanya Ott: If the old way of gauging success or really measuring things was to look at cost reduction or to look at increased efficiency and things like that, in this model, for the sort of traditional type of manager that wants to be able to look at a number, how do you measure success? Have these work groups developed some sort of rubric by which they can say, “This was successful,” or even “This concept of a work group was successful”?
John Hagel: It's one of the big challenges we found as we were looking for case studies. One of the things that we've discovered is companies are very systematic about tracking performance at the level of individuals. We're all familiar with the performance reviews as individuals, and at the department level, they measure performance as well. But at the work group level, it's come to be described as the invisible part of the enterprise. Everybody knows there are work groups, and they're pretty critical to the performance of the organization. But in our experience, very few companies are systematically tracking performance of work groups. So we think that's a big opportunity in its own right, to really start to figure out what are the metrics. Again, it's going to be context-specific.
Maggie mentioned the practice of committing to a shared outcome. Well, that can become pretty helpful in terms of starting to define some performance metrics that matter to that work group. So if your shared outcome is saving lives, you can start to track how many lives have you saved, and what's the rate of saving lives over time. So that starts to give you a basis to think about the metrics that matter for that particular work group.
Maggie Wooll: One of the tasks for the manager is to help work groups make sense of the metrics they're coming up with, and which ones are the most relevant to the operating metrics that really matter for the organization. So what are the areas for that organization on a larger scale—either where are their pain points, or what could really propel them forward?
Tanya Ott: What are the biggest challenges in implementing this work group concept?
Maggie Wooll: It's pretty subversive when you get down to it, because it is asking them to give up some control. You're not handing down a process from above that gets implemented rigorously. The good news is that process compliance is actually pretty low already anyhow, but it's making a little bit more explicit that at the frontline level, they are not just going to be stamping out a process that's been handed down from above.
John Hagel: I do think part of it, in that context too, is starting just by surveying, looking around at the work groups that are already in existence in the company and finding work groups that seem to be increasing performance over time, starting to track that performance in a more systematic way, because now it's largely invisible to the rest of the organization. If you can quantify the impact that's being achieved and that is improving over time, that starts to attract attention and inspire some other people in the rest of the organization [who] say, “Wait a minute—could we adopt some of the things they're doing that would help us to do that as well?”
One of the things we're intrigued by has been this whole movement toward business process reengineering. This is very much driven in a scalable, efficient mind-set—that is, the best way to get scalable efficiency is [to] tightly integrate all the activities into a N10 process and reengineer that process to make it as efficient as possible. And not to diminish [this approach], a lot of efficiency was achieved through the effort, but again, in a more rapidly changing world where these unexpected events are constantly presenting themselves at an increasing rate process, these increasingly become prisons. They constrain your ability to respond in the moment to whatever the context is and come up with a better way of doing things.
Tanya Ott: John Hagel and Maggie Wooll outline nine steps that working groups can take to accelerate performance in their article Beyond process: How to get better, faster as “exceptions” become the rule. It’s at deloitte.com/insights. I’m Tanya Ott for the Press Room. Thanks for listening! We’ll see you back here in two weeks.
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