It really does seem that the UK is coming out of recession.  Today’s PMI (Purchasing Managers Index) figures show a robust January for the manufacturing sector with the strongest figures since 1994.  Since manufacturing forms a significant part of GDP, this implies that business conditions generally are improving.  That is very welcome news but concerns of a double-dip recession have not gone away entirely.

The big challenge facing manufacturers and service industries is being flexible enough to mirror demand.  Too much capacity eats away at profit, while insufficient capacity gives market share to competitors.

I like the notion of lean manufacturing and see this as a valuable way of achieving flexibility.  Lean manufacturing is based around the principles of value creation and the elimination of waste.  A recent addition to the types of waste is “unused human talent”.

Tapping into that rich vein of unused human talent may not be as easy as it sounds - particularly if the culture does not actively and explicitly encourage this.  For example, cultures where managers stifle initiative by controlling everything personally or where people “get hung out to dry” for the slightest mistake will not result in the realisation of latent talent.

In my experience most organisations have huge pools of talent which they fail to capitalise upon.  Just imagine how many processes could be improved, how efficiency could be driven up and how costs could be reduced.

Realising these benefits does not happen of its own accord, it needs a different culture – one in which achievement, initiative and teamwork are nurtured.

Changing culture means changing individuals’ behaviours, which is never an easy thing to do.  A good starting point is to understand the organisation’s culture by measuring it, then putting a plan together to change it.

It’s not rocket science; it’s just common sense really.  

Mike West

www.novaconnection.com

At the risk of sounding like Doctor Doom, 2010 is going to be a very tough year, but I do believe that there will be opportunities for resilient organisations (see previous blog on resilience).

UK plc is in much worse economic state than the US and quite a bit worse than most major European nations.  The UK has yet to exit recession, faces rising unemployment and is running a budget deficit of 13.2% of GDP.  VAT takings are down 14.2%; we have spent £190.4 billion on quantitative easing and there are worrying signs that inflation might be starting to rear its head.

Interest rates can only go in one direction – upwards – and inflation could trigger that move sooner rather than later.  Higher interest rates will lead to more house repossessions and business failures which will further reduce tax receipts and increase the burden of benefit payments. 

By contrast unemployment seems to have bottomed out in the US and investment there is projected to increase by 2.1%  while UK investment will be reduced by -5.2% according to the OECD.  Canada will increase their investment by a whopping 4.4%.  So how can that be?  Oh yes, by regulating their banks effectively, they avoided the credit bubble.

On the subject of bubbles, we’ve had the dotcom bubble, the housing bubble and the credit bubble – so what’s next.  I suspect that it will be the sovereign debt bubble.  The PIGS (Portugal, Ireland, Greece, Spain) are weighing on the Euro and a number of other nations including Dubai aren’t in great shape either.

Yet in spite of all of this, life will carry on; some organisations will fail while others will do spectacularly well.  Whether the strategy is survival or growth, resilient organisations seem to do best.  These are some attributes of resilient organisations: 

·         Resilient organisations have resilient leaders  

·         They focus on the longer term; it’s the short term which got us into this mess  

·         Productivity is the key to growth – they don’t simply cut costs 

·         They build organisational capability  

·         Resilient organisations have a clear sense of purpose which is based on customers   

The keys to resilience are leadership and culture.  Winning over hearts and minds is never easy but right now the “touchy-feely” stuff is more important than ever. 

Mike West 

www.novaconnection.com

I have never played Dungeons and Dragons (an on-line fantasy game) but understand that it has a huge following. It’s a role-playing game where each participant is assigned a character which embarks upon imaginary adventures in a fantasy setting.   Together, the characters solve dilemmas, engage in battles and gather treasure and knowledge.

What’s really interesting is that the characters are assigned “alignment”, including lawful good, good, unaligned, evil and chaotic evil.  The purpose of this alignment is to describe and apply the moral and ethical perspectives of the players, societies and monsters in the game.  For game players this additional variable adds complexity, uncertainty and excitement.

As real-world organisations engage in battles to gather treasure and knowledge , they too need to consider the implications of alignment and the impact this has on performance .   After all, organisations are dynamic systems and like other systems they function best when their components are working together smoothly and efficiently.

There is much that organisations can do to improve their alignment and increase performance.  Achieving a constructive culture – one which places equal emphasis on customers, employees and shareholders is one example of alignment.    Leadership Development programmes which encourage constructive behaviours while valuing performance and teamworking are another example.

Achieving better alignment is always a challenge but there really is treasure to be gained from slaying the odd dragon here and there.

www.novaconnection.com

We have supposedly seen some more “green shoots” of recovery over the last few weeks.  It’s true that many companies have exceeded analysts’ expectations but their accounts reveal that, in most cases, this has been achieved by cutting costs rather than growing revenues.  Microsoft, for example, announced its first ever sales drop this week, but in their case cost cuts didn’t make up for revenue reductions.

Personally, I remain bearish on the economy.  Just because GDP numbers are less bad than last time does not mean that they are good, that we are into a new bull market or that the recovery has started.

But recessions do not have to be all doom and gloom.  Interestingly, they have given rise to some enduring brands and innovations - Edision’s incandescent light bulb (1873), Colour TV (1929), Rice Krispies (1931), Diet Coke (1982) and the IPod (2001).  All of these innovations went on to produce substantial revenue streams, jobs and shareholder value.

Here’s the interesting point about this list; at the time when most firms went into lock-down these organisations had the vision to identify opportunities for innovation and growth.  They actually invested in their future rather than simply cutting costs.

Clearly, some cost cutting is inevitable during a recession – even in the best run organisations.  However for the weaker, highly-geared and less resilient organisations times are harsh and Darwinian.

So, what can organisations do to ride out the recession and be stronger for the upturn?

• Develop a clear, well thought out strategy
• Regularly test assumptions made about customers
• Ensure that leaders are visionary
• Build a culture which values innovation and achievement
• Up-skill the workforce – and leaders – particularly - are not exempt from this process

I agree that this list may seem daunting, but as the Roman poet, Virgil, famously said – fortune favours the brave.

Mike West 

www.novaconnection.com

Heard of organisational resilience? No?  Neither had I before attending a conference last week, organised by Human Synergistics.

Gary Hamel first wrote about organisational resilience in 2003 saying: 

You can't predict what the world will look like in 10 years, so you try a variety of things.  Some will work. The crunch comes because in many organisations it's very hard to move resources from old things to new.  All the resources are devoted to perpetuating legacy programs.

He argues that most organisations defend the past rather than build their future.  That’s an interesting idea.  So would “building the future” have prevented the recession?  Unlikely because economies run to cycles of boom and bust.

So what exactly does building for the future imply?  And how do you move resources from old things to new?  The American automotive industry is a good example of defending the past and failing to build for the future.  Europe and Japan, by contrast, recognised the long term imperatives and continue to adapt. 

In the electronics sector, Apple certainly shows how it can be done - announcing their best ever Q2 results last month ($1.05 billion) achieved by selling innovative products at the right price.  Incidentally they are also sitting on a cash pile of $29 billion.  I guess that’s what resilience looks and feels like. 

Achieving organisational resilience can be a huge challenge, but here are some themes from the conference:

·         Resilient organisations need resilient leaders

·         Focus on the longer term; it’s the short term which got us into this mess

·         Don’t simply cut costs, productivity is the key to growth

·         Build organisational capability

·         Make sure that you have a clear sense of purpose which is based on your customers 

All of that sounds logical and sensible but in practice it’s not going to happen without effective leadership at all levels, a supportive culture and a robust strategy.  

Mike West 

www.novaconnection.com

“You can’t manage what you can’t measure” is a quote dubiously attributed to one the wise men of management science, Dr W Edwards Deming.  Putting the attribution to one side for the moment, the quote makes a good point because what gets measured tends to get done.

But there is a problem with this in that we often go for easy metrics rather than the most effective metrics.

Take hospital bugs as an example.  We know the number of poorly people succumbing to C. difficile and we also know that it is spread by hand to mouth faecal contamination; in other words it’s caused by poor hygiene.  There’s no nice way of putting this – you have to ingest poo to catch it and one of the most common ways that this happens is by people not washing their hands after using the toilet.  Clearly, collecting personal hygiene information could inform a campaign focused on reducing the cause of C. difficile.  But these measures would not be easy to obtain.

Before I start sounding too much like Howard Hughes, let’s get back to Deming.  What he actually said was that the most important things cannot be measured  Well, there could be a good deal of debate around that.  He also said that the most important things are unknown or unknowable.  By this he was referring to Taleb’s black swans - large-impact, hard-to-predict, rare events beyond the realm of normal expectations.  A year ago, for example, few people predicted the credit crunch and even fewer anticipated its impact.  911 is another black swan example.

It’s true that we cannot anticipate and measure everything; it’s also true that we shy away from some of the more challenging measures which can have a profound long-term impact on our organisations.

I was with a prospective client last week who described the excellent work being done on leadership development and culture change.  When I enquired about measures for  culture change, there were none.  Culture certainly falls in the area of hard to measure but as I explained, there are now highly effective tools for doing this.

And what gets measured tends to get done.

Mike West

www.novaconnection.com

I like learning from others’ mistakes.  It’s satisfying and it can save a lot of hassle.  It’s true that mistakes are part of the learning process but there’s no point in making avoidable mistakes.

Amusing examples of avoidable but tragic mistakes can be found in the Darwin Awards.  Just in case you have not come across these, they salute the improvement of the human gene pool by honouring those who remove themselves from it.  The awards go to individuals who have not really thought things through – such as the armed thief who attempted to rob a gun shop!

So, when Change Management programmes fail – and research shows that the majority do fail - are these avoidable or unavoidable mistakes?  To what extent is it a case of organisations assuming too much and not thinking the process through?

Well, there’s a great deal of literature available on change management - just try “Googling” the subject.  Given the amount that is known about change management, it could reasonably be argued that most of the failures are avoidable.

Just for the record, so that you can avoid them, here are some of the widely-known mistakes made with change management programmes:

·         leaders not engaging sufficiently

·         failing to create a strong enough consensus and momentum for change

·         under-communicating the vision

·         not creating short-term wins

·         lack of continuity - changing priorities, moving on to next “flavour of the month”

·         misreading progress, declaring victory too soon

·         neglecting to embed changes firmly in the corporate culture 

Enough of reasons for failure.  Quentin Jones and his colleagues at Human Synergistics Australia have identified a meta capability which they found to be critical to success.  They call it reflexivity, which they define as “the capacity to become aware of self in relation to others and the organisation”.  In practical terms, this means:

·         building self-awareness through feedback

·         creating a reality check through appreciating others’ viewpoints

·         organisation-wide monitoring of progress towards the preferred culture 

It sounds like common sense to me but, hey, there’s nothing common about sense as the Darwin Awards demonstrate again and again.

Mike West

www.novaconnection.com

Thunderbirds are go!  The world seems to have stepped back from the brink, for now, with an international rescue package designed to unlock the world’s financial markets.  The cataclysmic meltdown did not happen as the IMF warned and the markets seem to be responding favourably.  But a week is a long time in the financial markets right now.

The hubris and greed of the financial services industry leadership worldwide is disappointing and bewildering.  To make matters worse, their failure in the UK was rewarded with £16.8 billion in bonuses according to the Office of National Statistics.   The failure of the government authorities to regulate is equally shameful, allowing obscure financial instruments to be traded and credit bubbles to be inflated out of all proportion, which would inevitably burst.

What on earth was going on and did they give no thought to the misery which will ensue?  We’re back to hubris and greed, placing responsibility firmly with the leadership for allowing such a culture to take hold.

The word “hubris” is taken from the Greek for insolence.  It is a defined as a tragic flaw; fatal arrogance towards the Gods; overreaching; over-confidence.  And it is inevitably punished.

So what is the answer?  It’s time to emphasise the importance of leadership and culture.

By leadership I am not just referring to the CEO, I mean the whole leadership infrastructure – that includes the Directors and Non-Execs who have onerous responsibilities in the area of corporate governance, senior managers and other influential individuals who may not be called leaders but are looked up to as such.

So far as culture is concerned, I am referring to the behaviours and values of the organisation.  A powerful way in which culture can be reinforced is through the reward system.  So if bonuses are based around short-term goals such as pumping up the credit bubble, then it’s inevitable that increasingly risky products will be sold and the bubble will ultimately burst.

It’s time for a more responsible leadership which is prepared to build for the future and values longer-term goals - a leadership which has a clear sense of direction and encourages an adaptive culture which balances the needs of employees, customers and shareholders.

Achieving these changes is expensive and the industry’s current addiction to short-termism needs to be overcome before there is a willingness to make this important investment.

Mike West

www.novaconnection.com

Perhaps a better title for this blog would be making the case for change management in uncertain times.  I cannot recall such uncertain times during the last 35 years.  Sure, we’ve had market crashes, major conflicts and tragedies such as 911.  But we’ve never experienced them on a daily basis before.  Yesterday we saw the biggest ever numeric drop of the DOW, the sub-prime rescue package voted out and three major banks being rescued – a contagion affecting the US, UK and mainland Europe.

It’s unsettling to say the least and it has an impact on most businesses and most individuals.  By this I mean that credit has all but dried up in the financial sector, mortgages are both hard to get and expensive while pension funds have fallen by about 30%.

We’re in uncharted territory and nobody is quite sure how to make a map.  So what do you do?  Well the natural reaction is to do nothing, find a cosy foxhole and pull over lots of cover.

Returning to the markets, that’s just what some people are doing but it was interesting that Warren Buffett is taking a contrarian view.  In the middle of this chaos and uncertainty he has written a cheque for $5 billion – buying into financial services (Goldman Sachs) of all areas.  Few would argue with his judgement given his spectacular track record over the last fifty years.

Uncertain times present opportunities.  But identifying and taking advantage of those opportunities requires a culture which is adaptive to change.  Having a smart CEO is not enough in this age of complexity; gone are the days when the boss made all of the decisions and everyone else implemented them.

Creating a culture which anticipates and embraces change is the real prize, but sometimes it can be hard to work out where to start.  Well, you could try examining the behaviours in your organisation to find out if they are really helping or hindering.  Our Introduction to Culture is a low-cost fast-track way of doing this.

Mike West

www.novaconnection.com

Rummaging through my in tray, I came across some interesting research by the Hay Group.  It claimed that poor working climates are costing the UK financial services industry a staggering £8.5bn every year in lost profits.

It went on to say that as much as a third of an organisation’s business performance is dependent on a positive working climate and concluded that only 20% of finance executives create a high performance climate, according to their employees.  Apparently, a lowly 17% manage to generate an energising environment.  It gets worse, 46% actually create a demotivating environment for staff.

If ever there was a sector under the cosh, it has to be financial services; one would have thought that there was some low hanging fruit for them to pick here.

The crazy thing is that it’s not that expensive, in the grand scheme of things, to address some of these issues.  Development programmes for leaders can make them more effective communicators, show them the impact they are having on culture and contrast this with the impact they would like to have.  A coaching programme can then be put in place to bridge the gaps.

What I find really interesting is that both effective and ineffective leaders tend to want a similarly constructive impact on those around them.  It’s an issue of leadership style and behaviours which, fortunately, can be learned.  And the outcomes are energising for all.

Now I am not claiming that leadership development will rebuild the balance sheets of financial services organisations, but the resulting performance gains will certainly improve effectiveness, efficiency and morale.

Mike West

www.novaconnection.com