The HR Lament

When will Human Resources (HR) leadership stand up for themselves and their team and demand a seat at the table?

Recently I’ve seen a resurgence of commentary about HR “not being a strategic partner.”  I’m getting tired and bored with the whining.  We’ve heard this lament for more than two decades.  There is a reason that HR has not been, and is not yet a strategic partner within most companies, and here it is:

HR DOES NOT HAVE A STRATEGIC VALUE PROPOSITION

Long ago HR cut its Faustian deal with management and now it’s living with the consequences.

I worked in HR consulting for over a decade and have a lot of good friends and clients who are still in the business.  I’ve been watching from other perspectives for many years but find that at the end of this day HR still has not been able to turn the strategic corner.

Here’s some of what went wrong.  Early in the 1990’s companies became more focused on profits and shareholder returns.  When growth and pricing couldn’t provide the desired results, management then looked to reducing the companies cost structure.  In many organizations PEOPLE were identified as the biggest variable in the cost structure that could offer up short-term returns.

Politically, however, in most companies it’s just not acceptable for executives to say they will convert people into profits.  So, organizations came up with a euphemism by saying: “we have to become a performance culture and to do this we must break the entitlement mentality of employees.”  And even this statement, as indirect as it was, could not be used outside the management committee meetings.  The “cut heads” strategy became a covert operation mentioned only in vague terms in public statements and employee communications.

Despite the fact that execs were desperate for an action plan – any action plan – to improve results, they used the “entitlement mentality” to make aggressive headcount whacks while allowing them to sleep at night.  The assumption was that employees don’t perform because they are comfortable.  They know that every day they work improves their pension, benefits, and pay.  Why should they perform when their welfare is secured?  (Unfortunately no one tested the assumption.)  

In the quest to become a business partner HR leadership took on the assignment of dismantling the entitlement mentality.  Defined benefit pension plans became defined contribution plans; employer paid health insurance was downloaded to employees; and merit pay became performance pay.  Brick by brick the employee entitlement mentality (and loyalty) was dismantled – and the compliant HR staff wielded the tools needed to “make it so”.

Did this make HR a strategic partner?  Hardly!  It made HR a servant responsible for the apathy we now see in the workforce.  I recently learned that studies indicate that non-business “web surfing” and social media use at work has tripled in less than a year; and that 25% of a corporations internet bandwidth goes to video streaming.  Is this our vision of a performance culture?

Well, HR might be able to save itself but it will take a huge transformation.  It starts with, but goes well beyond the simple wisdom that HR must get to know the business.  We’ve been looking under this rock for years.  It hasn’t worked.  We must look elsewhere. 

First HR has to accept that its principal mission is to contribute to the business by providing a “high performing work force.”  This is a long-term strategy that does not cater to the quarterly need to produce financial results.  We need to take some specific actions:

1. Reorganize HR:  Take all of HR’s transactional business and put it under a Director reporting to the CFO, and give it a new (old) name: “Personnel”.  Assign the strategic work of building the workforce to a VP HR who has the horsepower to sit at the executive table.
2. Dump Performance Evaluations:  Is there anything more bureaucratic and that adds less value to a business than performance management systems.  Decouple them from pay and simplify them.  Use them for development, not pay and promotion.
3. Dismantle Performance Pay:  It has never worked.  It’s an escape for managers who want to be protected by an excel spreadsheet.  Distribute discretionary pay from a profit pool.  If you want to reward high achievers more than the pool allows, go ahead.  Managers are paid to make tough decisions and stand by them.
4. Hire the Best Talent in HR:  Now lets be serious.  Where is the last place we put our top performers?  In HR, right.  And when we see a top performer in HR what do we do with them?  We raid them and put them in a meaningful business function, right?  Does this sound like a formula to build strategic HR partners?

My hypothesis is that HR is one of the toughest roles in a company.  Its job is often to get in the way of capricious line managers.  In its quest to help managers build a high performing work force HR often must say “no.”  When managers are faced with the trade-off between profits and people, they often make a sub-optimal decision that favors profit.  HR should be called on to save the long-term strategic interest of the business.  At the moment HR doesn’t have the vision, talent, or respect to do this.

It’s unlikely that HR will ever get an influential place at the table until it enunciates a value proposition that senior management recognizes and then delivers on the promise.  There is a huge opportunity today for an HR professional to step up to this challenge and show the world how it can be done. 

Change Management and Incremental Budgeting

If you want to change your organization, you need to know how it allocates resources.

Change is a Function of Resources

Recently I worked with a big brand consumer product goods company.  Our team worked on increasing customer loyalty in a commodity business where global competition was accelerating.  

Early on it became obvious that we needed to shift the customer focus from the “rational” benefits of the products to the “emotional” relationship we could build with the brand.

We worked with client teams to better understand the needs of their customers and to develop ideas for new products, product extensions, and marketing.  Some of the ideas were brilliant game changers while others aimed at needed incremental improvements.

The client teams built business plans and submitted them into the formal decision-making process to get funding.  That's when the  wheels started to spin.  We were caught in the realities of incremental budgeting that had committed resources over long periods to specific responsibility centers. 

The brilliant political scientist Aaron Wildavsky taught us long ago that incremental budgeting works because … well, it works.  We know that 80% of what an organization needs to do next year will be the same as what it’s doing this year.  When you’re allocating resources it’s simple math to get from here to there.  The problem is that every year the 80% shifts.

The key is the 20%.  That’s where change comes from.  That’s the investment in the future.  That’s transformation and survival.  The question, of course is how to fund the 20%.  This is where incremental budgeting becomes a barrier to change.

Incremental budgeting strives for predictability.  It likes to lock in resources in multi-year plans for: operations, capital improvements, projects such as IT, and even R and D.  As line items get frozen in place they also have tacit approval to eat ever-increasing amounts of resources and push out the 20%. 

To accommodate the vagaries of the 20% organizations often claim that they will “repurpose” on-going resources, as the needs of change become known.  Don’t be trapped by this sirens call.  Don’t think that somehow managers will find sufficient resources in their base budgets to fund change.  Repurposing doesn’t work.  It’s a euphemism for “change is a good idea but we’re really not committed to it if we have to make tough decisions that affect our incremental plans.”

If your organization believes it must change then don’t even launch the initative unless you support it with the means to survive.  You need to understand how resources are allocated and you need to change the resource decision-making process to accommodate the 20%.    

Here’s what you need to do to fund your organization’s ongoing renewal:

1. Carve out and dedicate resources for change.  Don’t fund change through the traditional, incremental budgeting process.  
2. Use the skills of creative leaders to decide how to use the change budget.  Don’t rely on the power structure to make decisions about change.
3. Use a “stage and gate” process to refine and develop change initiatives.  Don’t make big bets that stifle flexibility.

By definition, change is not the same as your ongoing operations.  If you don’t fund change differently it will be little more than rainbows and butterflies.

Corporations - Where Ideas Go To Die

How can we stop big corporations from killing good ideas?  How can they internalize an entrepreneurial spirit? 

I spend most of my time working with organizations to help them change.  I use a variety of levers such as: innovation, customer loyalty, or employee engagement.  However, the objective is always the same: to get people thinking so they can make changes to their business.

It's exciting to see people generate new ideas and use the ideas to develop new opportunities.  But implementation always lets air out of the balloon.  When I work with complex organizations we quickly make incremental changes; however, game changing ideas often end up in a graveyard.  Here are two of my recent examples.

The Swish.  I worked with a team of new hires in a technology firm.  Their social media idea was to "swish" content from one mobile to another.  Their thought was: "if you're in a mall with friends and you get a photo that you want to share, no need to send it - just "swish" it to your group."  

Great idea.  It needed some work and development, but quickly the team produced a prototype.  There was lots of excitement until we turned it over to the formal organization for commercialization.  Death!

Have you seen the new Galaxy S III?  Put two of them back to back and tap - you can transfer information from one to the other.  No need to send.  Sure, it's not a "swish" but we had a beta a year and a half ago.

The Relationship.  I worked with another team of young people who wanted to make "dating" more exciting.  They recognized the discontinuity in the market where people date long into their 20's and 30's.  Their idea was to build a special app to aggregate and share experiences for couples.

We refined and cycled this idea through the companies "innovation committee."  We needed a small amount of seed funding for experiments.  We never got the money.  The committee could not understand the need and constantly asked the team for proof that the idea would work.  Death!

About a month ago I was reading the Economist.  There it was.  The exact same idea.  A group of young entrepreneurs got the app to market and were overwhelmed with the success.  More than half a million accounts were set up in the first month.  Hey, we had that idea a year ago.

So, what's happening here?  I think that everyone recognizes the barriers to change in big organizations.  We don't create organizations for change, we create them for consistency, efficiency, and low risk.  To maintain the inertia of predictable outcomes we set up: silos, approvals, budgets, controls, reports, rewards, and metrics.  People don't resist change, they just do their jobs.

However, there are ways to overcome the inertia of risk aversion.  I've found that if I ask three precise questions in the right order then I increase the probability of success.  Here they are and in that right order.

1. Who is the customer?  Do you clearly know the target for the idea?  How big is the customer population?  (The bigger the number the better.)  Facebook is aimed at billions of potential customers, not just six people down the street.
2. Can you do it?  Can you actually do what you want to do?  Do you have the abilities?  Do you need to marginalize the idea to make it work?  Do you need to dilute your idea by taking on partners?
3. Can you make money?  What is the business model?  

Yes, "money" is the last question.  Asking this question too early in the process will send the idea directly to the graveyard.  It takes time, effort, and resources to de-risk an idea before you can reasonably forecast its financial success.  

Big corporations don't have to be idea killers.  They can return to their entrepreneurial roots.  They just have to discipline themselves to ask the right questions - and in the right order.

Reverse Innovation - New Twist on an Old Strategy

What's innovative in innovation?  What's new under the sun?

Well it seems that "reverse innovation" is new, at least HBR calls it one of the 10 best ideas of the decade.  I'm not going to disagree with the HBR.  I'm a big fan of the writings of Vijay Govindarajan and Chris Trimble who are credited with the concept.  In fact I'm a professional colleague of Chirs and we have talked about reverse innovation.

On the other hand I've spent more than two years working on innovation assignments in Southeast Asia, most particularly in Korea.  This gives me cause to think about reverse innovation from a unique perspective.

Let's take a look at some of the basics of reverse innovation, as I know them:

1. Westerners take western products, like a $350,000 ultrasound, to emerging markets and set an audacious goal of innovating a machine with similar functions for $15,000.
2. The new product, in this case the ultrasound, is aimed at the needs of the people in the emerging market.  Sure, the new machine isn't "all tricked up" but it does its basic job for a mass market. 
3. As the product is used and improved it can be converted to western standards and aimed back at western markets.

Voila, a win-win.  The ultrasound improves the social condition of those in emerging markets and it comes back to the west at a considerably reduced price that helps control rising health care costs.  You can't complain about that.

But, there's more to reverse innovation.  Here are a few things that I see:

1. China and India:  The concept seems to be targeted at the two huge emerging markets of China and India.  (Maybe Brazil, but Brazil seems to have past the point of being an emerging market).  Reverse innovation applies in big markets where you can have viable business models built on low costs for large populations.  China and India meet this criterion.  
2. Reverse Engineering:  Reverse innovation is a new play on an old strategy; that of "faster, better, cheaper" - we call it "reverse engineering."  Japan and Korean are successful practitioners.  They use reverse engineering to fuel export strategies aimed at the west because neither country has a population large enough and wealthy enough to sustain demand for new products - no matter how they are priced.
3. Dependence: Reverse innovation is dependent on the west.  Unlike Japan and Korea who lead their own innovation transformations; reverse innovation is led from outside the emerging markets.  
4. Second Tier Innovation:  Reverse innovation, like reverse engineering, is a second tier mode of innovation.  It's improvement, not origination.  We are not finding the next Facebook or reinventing the music industry through the i-pod.

So yes, I think that reverse innovation is a great way to upgrade the emerging societies of China and India.  This work will also remind innovators in the west that one of the fiercest conditions for break through innovations is lack of resources.  Take Skype for example, it has been around for 10 years but lack of investment meant a poor quality product.  However, in developing countries poor quality VoIP has been better than no communication at all.  As Skype quality improved so did its acceptance in western markets.

My biggest question about reverse innovation is the dependence factor.  Will we transfer knowledge to emerging markets so they can innovate on their own and innovate in game changing white space?  Or will the west choose to guard its role as originators of big ideas?

70% of CHANGES FAIL!

Why do change agents keep saying this?  

Isn't that like your financial advisor telling you that you will lose money in 70% of the investments they put you in!  How long would you stay with them?  

I know what we're trying to do, we're trying to create the "sense of urgency" to compel change.  But, isn't it about time we took more pride and professionalism in what we do?  Isn't it time we stopped saying this and got to the bottom of why most changes fail?

You can beat the odds

You want the answer?  Well here it is: most change fails because it's the wrong change!  The fact is that most large scale changes (particularly if there is a large cultural element) never have a chance.  As change agents we're often called in on some ego driven, aspirational change that won't work.

I know, I know - we go on to cover up our failures with the worn out excuses about: lack of leadership from the top, lack of resources, poor communication, and the catch-all of "employee resistance."  Is that true?  Likely not.  The truth is likely closer to the fact that we didn't accept the fundamental barrier to change so we didn't advise our client properly.  

What is the fundamental barrier?  It's the core DNA of a business that drives its implicit strategy.  It's the core values of the company.  These may be stated or unstated; good or bad; right or wrong.  They may have driven the business to success on the highest ground; they may have prevented the business from getting off the ground; or they may be driving the business into the ground.  They cause people to make decisions everyday without thinking.  In aggregate, they're "the way we do things around here" and they are the immune system designed to preserve the organization and defeat change that doesn't respect them.

So what are these DNA values?  There are three and in great companies one of the three will dominate.  Here they are:

• Service to Customers.  This is embodied in Disney-World and Starbucks.  It drives a strategy of customer centricity.
• Quality of Work.  We can think of Southwest Airlines and its strategy of operational efficiency which draws in its loyal customers.
• Respect for Innovation.  These are organizations that are open to ideas - can we all say, Apple.

Of course these values can be thrown out of balance not by another value, but by something we value: profitable growth.  When profitable growth is the dominant strategy then values become distorted.  Chase Bank gives us a recent example of this.

So, you better understand this if you want to get out of the 70% club.  If you're working against the grain then people don't resist, they just go on doing what they've been programed to do.  

That's not to say that there isn't room for change to work against the grain.  It's quite logical to think that Starbucks might want to get a little more efficient (better quality of work) at order taking; however, it can't be at the expense of the relationship experience that customers expect.  Similarly, you don't want Starbucks baristas working the phones at the call center of your mobile service provider (well, you may want it, but you don't want to pay for it.)

The biggest problem is when financial growth (cost cutting and employee cutting) is the driver of change.  If this is the case then openly recognize it.  No amount of vision, executive commitment, and "what's in it for me" communication will ameliorate resistance.  This is Nike change, "just do it!"  Removing a band aid has a finite amount of pain - my advice is to rip it off rather than prolonging the pain.

I consulted to a company whose innovations made it an overnight success.  They wanted to scale up their manufacturing and after sales service to meet a growing demand.  After a week of consulting I advised them to outsource their manufacturing, sales, and service; and take on an "adjacent possible" strategy by using their cash to buy horizontal businesses that were driven by innovation.  

Ego and aspiration defeated my advice.  For years the company lost profit as it struggled to drive quality into its products and service into its relationships.  It was recently bought by its biggest competitor.

Hmmm.  Does that count in the 70%?

Democratizing Innovation

Everyone, Everywhere

What's all this talk about Innovation?


Everywhere I look people are talking about innovation.  It's like they just found their lost puppy.


I guess it helps when people like Steve Jobs and Eric Schmidt say that innovation is the best way to save a company's future - but what are we talking about when we're talking about innovation.

The word "innovation" has been democratized (or high-jacked, depending on your point of view) like its cousin "strategy."  Both words are now devoid of meaning.  We use them to mean anything we want to when we want to sound like we have something important to say.

Innovation is now an all inclusive management term that is cut into three levels.  The first two levels have been around for a long time.  It is the third that is taking hold within organizations.

Level I is the Game Changer.  This has always been with us.  It's generally an elite activity carried out by some smart people who are usually not part of the establishment.  They see discontinuities in the world, match them with an emerging (often unarticulated) customer need and come up with something that no one has ever thought of.  Think of a young Bill Gates, Michael Dell or the current Mark Zuckerberg.

Level II are the Market Changers.  These innovations happen within existing companies.  Often they are developed by product experts.  Their innovations extend a product or create a new business model for a new product.  Some companies, like P & G are renown for their ability to constantly renew their businesses even in the face of short term shareholder demands.  Others, like Nokia and Kodak, lost this talent.

Level III are the Work Changers.  This is the new comer.  This is the movement toward mass innovation - that is, the democratization of innovation.  The concept here is: "ideas from everyone, everywhere."  Innovation has become synonymous with "idea."  The flood gates have opened to: employee engagement, continuous improvement, quality circles, team management, brainstorming, or any derivative of "change management."

This is a positive movement that will increase the effectiveness of organizations.  Innovation gives us one more lever to open them up.  One more way to move them away from tradition "command and control" management.  I favor any lever that makes organization life more personally satisfying.

The downside of innovation democratization is being felt by the practitioners of "strategic innovation" - those who have lived and prospered at Levels I and II.  The lives of these professional are in transition.  Their expertise is being commoditized.

Innovation professionals need to rethink their value proposition.  They have to confirm their focus: is it outside the organization or inside?  These practitioners will be tempted with the sirens call of mass appeal; but does that compromise their unique value.

The choice is theirs.  It's time to innovate!

Kim Jong-un. All for Un; Un for none

I'm leaving Seoul in a few days to go back home.  It's the first time in two years when I can say that I'm glad to leave.

I've been working with a client here; helping them use innovation to become more competitive.  I like the country and I love the people, but they have a crazy neighbor.

The Rocket's Red Glare

Since I've been here there has been a "North Korean incident" every few months.  The current escalations led the US Defense Secretary to say that this peninsula is only an inch away from serious violence at all times.

The most recent incident rings of the worst jingoism.  A few weeks ago the North had a failed launch of a missile.  It has received its fair share of criticism and ridicule from around the world - and specifically from South Korea.

In retaliation the North has railed that it will rain down special actions on the South that will "reduce the rat-like groups and the bases for provocations in three to four minutes."  I have no idea what this means, but it does sound ominous.

In an interview last week the US Secretary of State said that she hoped the new North Korean president, Kim Jong-un, would change paths in the North and build himself into a great leader for his people by bringing his country into a new era.  I hope she's right.

Through all this I marvel at my Korean friends.  They are impervious to the crazy threats and actions from the North.  They go about their lives with Confucius stoicism - or is that fatalism.