On this date 53 years ago, an administrator did what managers everywhere did in the 1960’s: he issued an interoffice memo to the staff in his organization. The organization had just faced an unexpected test — a true “black swan” event. The stresses upon the team and its systems were enormous, and yet the organization absorbed the moment while still maintaining normal operations for its regular customers. In less than 250 words, the administrator’s memo makes clear how the organization pulled this off:
Teaching to the test
It is a four-word phrase that is as much a curse for teachers who mutter in frustration amongst themselves as it is for parents who complain about it in frustration on social media. The well-known cycle that has led to the well-documented antipathy for this is as follows:
- Institute a simple set of numerical metrics — standardized test scores — aimed at capturing with scientific precision the performance of a complex process like educating actual human beings;
- Use those simple metrics to inform judgments about every human being in the system, regardless of their infinite peculiarities and the inherent complexities of what constitutes a four-dimensional concept like “learning”;
- Add new data along those simple metrics at regular intervals to apply a scientific approach to detecting potential shortfalls and failures as early as possible;
- Use those simple metrics to then judge the performance of the teachers tasked with teaching those human beings way more than just the limited information contained on the metric-measuring test;
- Tie those simple metric-based judgments to teacher evaluations, pay, and related employment decisions;
- Observe results of teaching that becomes more narrowly focused in order to maximize the scores that lead to the judgments about both teacher and student (both of which are complex human beings who predictably respond to fear, stress, and external incentives);
- Increase the focus on the simple but scientific metrics in order to raise performance;
- Return to Step #3 and continue;
- ad infinitum (Latin for “Lather, rinse, repeat”).
There is no shortage of voices out there making this case that this process is not working, nor should it be expected to succeed given what an “education” is and how “learning” works. “Teaching to the test” is not something anyone wants to happen, and yet the system that pushes all involved down that very path continues unabated. Performing well on the single metric of the test gives the appearance of success, even as the system is killing itself in the process.
This same, counterproductive machinery is at the heart of how many leaders fail their people as well.
For decades now, the accepted wisdom has been the same for both nutrition and management: cut the fat. Just as emerging science has come to show the health benefits of nutritional fat, it is time to reexamine the managerial obsession with eliminating “fat” and organizational waste.
Food For Thought
In the late 1970’s, the federal government launched a task force of experts to develop a national guide to healthy nutrition. The result of this effort was the USDA’s first Dietary Guidelines Statement, issued as a 20-page booklet in 1980, and as a result, the message to consumers was clear: eat foods like oils and butter sparingly. The theory was well-intentioned, based on the connection between those foods and cholesterol as understood at the time. In 1992, these recommendations were graphically represented with the USDA’s Food Pyramid, in which carbohydrate-heavy breads and grains formed the large foundation of a healthy diet, while the fats were placed in the tiny portion at the top with such things as sugary sweets.
As has been noted in many places (here is but one), this “cut the fat” mantra not only correlated to changes in America’s eating behaviors; it also correlated with a much more concerning trend. After slowly growing in the years before the landmark USDA guidance, rates of obesity among Americans zoomed upwards beginning in the same time frame of the late 1970’s. Even as more and more Americans substituted high-carb, low-fat foods (most often heavily processed) for high-fat foods (but mostly natural), American waistlines grew rather than shrank. More perplexing was the so-called “French Paradox”: the French maintained lower rates of coronary heart disease even as they kept to their traditional diet full of saturated fats.
As those trends continued over time in the wrong direction, researchers began digging deeper into the data and questioning the conventional wisdom. Scholarly studies were published, news articles were written, and books were produced all questioning the decades-long dogma of “fat = bad.” Butter even became a TIME magazine coverboy, with a giant swirl of yellowy goodness positioned beneath a simple headline: “Eat Butter.”
Finally, in 2015, the USDA issued its latest version of their five-year Dietary Guidelines, and a seismic change had occurred. As noted by Dr. Dariush Mozaffarian and Dr. David Ludwig in the Journal of the American Medical Association:
In the new DGAC report, one widely noticed revision was the elimination of dietary cholesterol as a “nutrient of concern.” … A less noticed, but more important, change was the absence of an upper limit on total fat consumption. The DGAC report neither listed total fat as a nutrient of concern nor proposed restricting its consumption. Rather, it concluded, “Reducing total fat (replacing total fat with overall carbohydrates) does not lower CVD [cardiovascular disease] risk … Dietary advice should put the emphasis on optimizing types of dietary fat and not reducing total fat.” Limiting total fat was also not recommended for obesity prevention … With these quiet statements, the DGAC report reversed nearly 4 decades of nutrition policy that placed priority on reducing total fat consumption throughout the population. … a global limit on total fat inevitably lowers intake of unsaturated fats, among which nuts, vegetable oils, and fish are particularly healthful. Most importantly, the policy focus on fat reduction did not account for the harms of highly processed carbohydrate (eg, refined grains, potato products, and added sugar)–consumption of which is inversely related to that of dietary fat.
Now, butter is back, and a whole new trend has emerged: fatty coffee, which combines a large measure of fat-rich butter and coconut oil with freshly ground black coffee. This concoction combines the increased metabolic effects of caffeine with the hunger-satisfying properties of fat. When paired with a diet low on insulin-triggering carbohydrates, proponents aim to put their body chemistry into a state of ketosis, in which stored fat becomes the body’s main source of fuel.
In short: we have gone from cutting fat from our diets and growing collectively more obese, to now putting butter in our coffee and bringing the sour cream back in order to burn the fat instead. If you’re wondering how you ended up in the “Food and Drink” section of Forbes, let me explain why all this butter talk matters as it relates to leadership and organizational management.
From Lean Eating To Lean Management
Ever since Frederick Winslow Taylor first brought his stopwatch to the foundry floor at Midvale Steel Works and published the results of his work, the principle of eliminating inefficient waste from the operation of an organization has been a dominant theme in business management. From the days of Henry Ford’s mass production revolution to Toyota’s “just in time” manufacturing model of the Sixties and Seventies to Motorola’s Six-Sigma process improvement methodology of the Eighties, “scientific management” has been the way to win by making things faster, cheaper, and better.
Over the last two decades or so, this paradigm of efficient operation has leaped outside its original manufacturing origins and into the white-collar world of the Knowledge Economy. It isn’t just the automotive factory floor that gets its organizational fat cut; now, as Lean.org assures us, any organization regardless of sector or work-type can be made “lean”:
The core idea is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources.
A lean organization understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste. …
A popular misconception is that lean is suited only for manufacturing. Not true. Lean applies in every business and every process. It is not a tactic or a cost reduction program, but a way of thinking and acting for an entire organization.
Businesses in all industries and services, including healthcare and governments, are using lean principles as the way they think and do.
But, as with the dietary dogma of the Eighties and Nineties, the question has to be asked: is this healthy in the world we live in now? As the drive to cut the fat from organizations has become the dominant managerial practice, the growth in the values of public companies has greatly outpaced the growth of their inventive output. Comparing the market capitalization of the world’s publicly traded companies with the numbers of patent applications filed with the US Patent and Trademark Office reveals a striking difference:
These trends are concerning if leadership thinkers as varied as Seth Godin, Google’s Eric Schmidt, and General Stanley McChrystal (ret.) are correct: that the confluence of the internet, mobile connectivity and cloud computing have fundamentally reshaped the topography of our working world. In this new world, winning requires —
• Creativity (Godin’s “Linchpins”) over Predictability,
• Talent (Schmidt’s “Smart Creatives”) over Process, and
• Resilience (McChrystal’s “Team of Teams”) over Efficiency.
This isn’t to say that the Taylorist values of predictability, process and efficiency are no longer important. Rather, they are simply no longer sufficient to win. What’s worse: if those impulses are left unchecked, they will choke out of existence the one thing most necessary in organizations for creativity, talent and resilience to flourish: empty space. (Think of the targeted free time made famous by companies like 3M and Google.)
Creativity happens in the margins of busyness, and Imagination flourishes in the dead zones of boredom. It is a messy process, with many fits and starts, all of which generate the kinds of “waste” (both in time and actual material) that the “lean” mindset seeks to reduce to the perfect number of zero. If, as Steve Jobs said, creativity is about connecting disparate dots, that process requires there to be idle dots just laying around not being used in the first place.
People with talent — not just technical aptitude but also the emotional engine to harness it — need the time free from measurable value-creation demands to do the value-creating work they are best suited to do. A perfect process that puts everyone to work on measurable activities 100% of the time with zero waste is like a boa constrictor that squeezes from the organization the spaces necessary for the real impacting efforts of “deep work,” as author Cal Newport calls it.
Finally, an organization with zero “fat” is one that is perfectly optimized for the environment as currently understood. Once that environment changes — and who would kid themselves into thinking that won’t happen sooner rather than later? — the hyper-lean organization finds itself efficient but fragile. Go to your kitchen and look around: if leaders ran their pantries like they run their organizations, a “just in time” food purchasing plan that results in zero waste would not be seen as a sign of wealth and success. Instead, that is the definition of subsistence, and efficiently being one unpredictable event away from hunger is the opposite of resilience.
Taking inspiration from the fatty coffee concept (I take mine with cinnamon!), let go of the decades-old dogma about organizational fat and try something new. Rather than trying to cut all of the fat out, find smarter ways to burn it, putting it to use as the fuel that drives your organization’s success. Here are a few suggestions:
• Don’t judge an employee or team’s “available bandwidth” to do more by mere activity metrics — while this method is efficient and easy for the decider (avoiding the harder and slower process of personally talking to an employee or team), it provides an incomplete picture of reality. More importantly, it also ignores the value of work-time spent beyond the reach of measurable metrics.
• Resist the urge to purge people and resources (they’re not the same thing!) as soon as their full capacity of work isn’t immediately necessary — this sacrifices good sense for the mirage that the current situation and needs will remain so for the foreseeable future, and any changes that come will be observed and recognized with enough time to adapt accordingly. A well stocked pantry of food is not a measure of food wasted, but of a plan to resiliently handle whatever unforeseen event may come.
• Overtly encourage people to devote time to do “deep work,” and protect their ability to do so — remember that the value of a painting is not judged by measuring the time spent on it, or the cost of the paints in it. It may take more time than you like for someone to finally “connect the dots” that unlocks the next great source of value and growth for your organization, but eliminating those spaces of time for thinking, tinkering, investigating, and imagining will forever leave those dots unconnected.
There has never been a better time to ask the question of how to succeed as a leader, as the internet is awash in prescriptive answers. Google the simple query “how to be a successful leader,” and you will receive over 280 billion results, chock full of easily digestible lists:
ad infinitum …
However, there is more to succeeding as a leader than knowing how. As Bruce Pandolfini writes in his book, Every Move Must Have a Purpose: “If a sailor doesn’t know which harbor he’s making for, no wind is the right one.” Identifying that harbor requires asking a harder, more fundamental first-principle question: Why lead?
In 2009, Simon Sinek stood on a modest stage in front of dozens of attendees at TEDxPugetSound. Armed with paper flip chart and a handheld microphone that had to replaced five minutes into his talk, Sinek introduced the world to his theory of “How great leaders inspire action.” Later that year, Sinek’s 18-minute talk became his book, Start With Why. When his TED talk went viral and his book became a bestseller, business leaders and marketers everywhere began trying to operationalize Sinek’s fundamental idea: “People don’t buy what you do; they buy why you do it.”
It’s a powerful idea, and the benefit of its focusing effect is clear whenever you look at an organization that gets it. Google and Spacex are two companies — one public and one private — that know their “why.”
• Google: “to organize the world’s information and make it universally accessible and useful”
• Spacex: “Making Life Multiplanetary”
It doesn’t take much looking to see that everything these companies do flows from these centers of organizational gravity.
But what about leaders? Why do they choose to lead in the first place? Why pursue the added responsibility, complexity, and stress that comes with leadership? Is material benefit alone the reason to carry the burden of leadership? Because, make no mistake: leadership brings with it a heavy burden. As Shakespeare’s king laments in Henry IV, Part II:
How many thousands of my poorest subjects
Are at this hour asleep! O sleep, O gentle sleep,
Nature’s soft nurse, how have I frightened thee,
That thou no more will weigh my eyelids down,
And steep my senses in forgetfulness?
Canst thou, O partial sleep, give thy repose
To the wet sea-boy in an hour so rude;
And in the calmest and most stillest night,
With all appliances and means to boot,
Deny it to a king? Then, happy low, lie down!
Uneasy lies the head that wears a crown.
Asking yourself “why lead?” is no small question, and how one answers it has been shown to have a dramatic effect on how successfully one actually leads. A friend and colleague of mine, Ryan Hawk, posed that very question to Sinek when he appeared as a guest on Ryan’s podcast, The Learning Leader Show. Sinek’s answer was simple and immediate: “If you have a desire to see others succeed, that is why you lead.”
Who Do You Lead For?
However, such an answer begs the question: who are the “others” you wish to see succeed? There are various and often conflicting interests that have a stake in the decisions a leader makes. In politics, it is a question of voters or donors: whose success really matters in driving decisions? In the boardrooms of public companies, a similar tension exists between the people who make the organization work and the stockholders who have a financial stake in the organization’s work. If you read enough corporate values statements, the answer appears nearly unanimous: business leaders want their people to succeed, for they are a company’s “most valuable asset” and its “competitive advantage.” For example, Wells Fargo’s paean to its people in its value statement goes on for 640 words, with such sentimental gems such as —
• “In hiring, we really don’t care how much people know until we know how much they care.”
• “We say “team members,” not “employees,” because our people are resources to be invested in, not expenses to be managed…”
• “We’re a relationship company, but our relationships with our customers are only as strong as our relationships with each other.”
And yet … these glowing expressions proved insufficient to prevent the leaders of Wells Fargo from initiating hundreds of layoffs nationwide to start 2016 after reporting earnings at the end of 2015 that exceeded expectations. This problem is not unique to Wells Fargo. It has become a theme in 2016 for companies to take a hatchet to their employee roster as if dire straits demanded it even as they report good financial and product performance that exceeds projections. Just within the last two weeks, both Twitter and Thomson Reuters joined the chorus, trimming 350 jobs (9% of total) and 2,000 jobs (4% of total) respectively after both reported positive Q3 performance. (Full disclosure: Thomson Reuters is a competitor of my current employer, LexisNexis, a division of RELX Group.) If these companies’ people really are their “competitive advantage” as they so often claim, why get rid of that valuable asset when times are good, with rising revenue and stable profit? If the leaders are leading because they desire to see their people succeed, why does the organizational success not benefit them?
When there is a lack of self-awareness in a leader as to why she is leading, a lack of effectiveness is the result. That doesn’t mean failure, necessarily, but it does mean that the leader’s full potential for excellence and success will be beyond her reach. As Yogi Berra is quoted as saying, “If you don’t know where you’re going, you might end up someplace else.”
When there is a lack of clarity and honesty as to who the leader is leading for, worse things happen. A disconnect between who the leader says he is leading for and whose success actually shapes his most important decisions will show itself in a number of ways:
• a degradation of trust between the leader and the team he leads;
• a drain on the leader’s time and attention, as both must be devoted to managing the flow of internal information and employee perception instead of more productive pursuits; and
• a derailing of the team’s mission, as the first two combine to handicap creativity, insight, and performance.
All around us, people are sensing the wide disconnect with the words leaders use to say why they are leading and the different answer their actions imply, and they are responding. Survey after survey shows: in companies across America, a majority of workers are either not engaged or actively disengaged. In the political sphere, this same dynamic led to the historic, terrain-changing votes for Brexit earlier this year, and a new U.S. president earlier this week. To effectively lead disengaged employees and disenchanted voters, leaders have to honestly answer why they lead and whose success they are leading for. In a conflicting hierarchy of interests, whose takes precedence?
Regardless of whether you are a current leader or aspire to be one, take some time to start with your why, figure out your who, and then clearly and honestly communicate those answers to the people you lead and whose trust you need. In doing so, those answers will guide you as you navigate the lists of “how to” tactics to arrive at the harbor of Success.
It is the quarterly earnings season — when public companies trot out into the town square and bare their numbers for the world to see: revenue numbers, profit margins, growth rates, etc. Investors of all sizes and degrees of sophistication, competitors, and the financial media all break out their
magnifying glasses microscopes to examine these numbers and percentages in all their minutiae glory, with the goal of gleaning from these financial entrails what the future will hold for a given company.
Employees aren’t a class of people often thought of as being keenly interested in the three-month cycle of financial disclosures and analyst obsession, but they should be. They, even more than the “shareholders,” are the ones most directly affected by all this. Case in point:
Twitter (TWTR) surprisingly announced three days ago that their earnings reveal would be moved up from the normally scheduled late afternoon time to 7:00 AM Eastern/4:00 AM Pacific today. What they rolled out early this morning was a litany of objectively positive news:
- Quarterly revenue grew 2.3% over last quarter, and 8.3% over the same time last year;
- Monthly Active Users grew 3% year over year;
- the growth rate of Daily Active Users is accelerating, from 3% in Q1 to 5% in Q2 to now 7% in Q3;
- 28% year over year growth in the quarterly Adjusted EBITDA operating profit margin.
Despite all this good financial and product performance news, Twitter’s pre-dawn announcement ended with this:
This morning we announced a restructuring and reduction in force affecting approximately 9% of Twitter’s positions globally. #TWTR
— TwitterIR (@TwitterIR) October 27, 2016
We remain committed to our previously stated long-term goal of 40-45% adjusted EBITDA margins net of traffic acquisition costs. #TWTR
— TwitterIR (@TwitterIR) October 27, 2016
For context, here is the profit margins Twitter has been running every quarter since 2014:
Twitter isn’t alone: the tactic of laying off employees under the guise of “reducing headcount” and “restructuring FTE’s” in order to “gain efficiencies” that translate into better looking financial numbers for the “Shareholders” is so commonplace that to take notice of it is to self-identify oneself as an outsider at best … or an unsophisticated ignoramus at worst. Sadly. tossing the crew overboard in order to save the cargo is now as predictable as the sunrise.
But, there’s nothing written into the fabric of the universe that demands things operate this way. Contrary to popular myth, the concept of “shareholder supremacy” is NOT, in fact, the law as it relates to corporate governance. From the Harvard Business Review:
Oddly, no previous management research has looked at what the legal literature says about the topic, so we conducted a systematic analysis of a century’s worth of legal theory and precedent. It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous.
There is no legal basis for the idea of shareholder supremacy.
And yet, in an important 2007 article in the Journal of Business Ethics, 31 of 34 directors surveyed (each of whom served on an average of six Fortune 200 boards) said … [w]hatever they could legally do to maximize shareholder wealth, they believed it was their duty to do.
This wasn’t always the case. As more than one author has noted, the use of employee layoffs as a financial tool to produce better financial numbers is a still relatively recent development, one that only gained widespread acceptance in the 1980’s.
For example, Simon Sinek, from his book Leaders Eat Last:
[It’s a point Sinek explains in further detail on his most recent conversation with Ryan Hawk on The Learning Leader Show (skip to ~21:00 mark).]
Layoffs had existed before the eighties, but usually as a last resort and not an early option. … Now, anyone could be laid off simply to help balance the books for that year. Careers ended to make the numbers work. Protecting the money, as economic theory, replaced protecting the people.
Or Duff McDonald, from his book The Firm: The Story of McKinsey and Its Secret Influence on American Business:
“Shareholders” is code for “Wall Street,” and starting in the late 1970’s, that’s where power began to be concentrated. … From the 1920’s through to the mid-1970’s, the giant American corporation had been the ne plus ultra of organizations. Then capitalism took an axe to itself, and the never-ending era of cost-cutting and rationalization was under way.
… and in Time magazine:
I make the point in the book that McKinsey might be the single greatest legitimizer of mass layoffs in history—although that would be pretty much impossible to measure. Companies do need to lay off workers in tough times, that’s a simple fact. But the whole idea of corporate powerhouses laying off thousands of people during good timessimply to juice profits—and, naturally, executive compensation—is something that McKinsey has definitely had a hand in as well.
This misguided belief that anything that’s legal should be done to drive added value to the stock owned by shareholders doesn’t just swing the axe into employees’ job security; it also chops away at a company’s ability to generate truly valuable innovations. As Sinek notes:
In fact, the more financial analysts who cover a company, the less innovative the company. According to a 2013 study that appeared in the Journal of Financial Economics, companies covered by a larger number of analysts file fewer patents than companies covered by fewer analysts. And the patents those companies do generate tend to have lower impact. The evidence supports the idea that “analysts exert too much pressure on managers to meet short-term goals, impeding firms’ investment in long-term innovative projects.” Put simply, the more pressure the leaders of a public-company feel to meet the expectations of an outside constituency, the more likely they are to reduce their capacity for better products and services.
Not even the mighty and uber-profitable Google/Alphabet is immune to these dynamics. Here’s hoping that the optimistic vision of thousands of newly unemployed tech employees starting hundreds of new businesses of their own proves true.