What do we mean by value creation? For the customer, it entails making products and providing services that customers find consistently useful. In today’s economy, such value creation is based typically on product and process innovation and on understanding unique customer needs with ever-increasing speed and precision. But companies can innovate and deliver outstanding service only if they tap the commitment, energy, and imagination of their employees. Value must therefore be created for those employees in order to motivate and enable them. Value for employees includes being treated respectfully and being involved in decision-making. Employees also value meaningful work; excellent compensation opportunities; and continued training and development. Creating value for investors means delivering consistently high returns on their capital. This generally requires both strong revenue growth and attractive profit margins. These, in turn, can be achieved only if a company delivers sustained value for customers.

If the purpose of business is value creation, it follows that the mission of any company should be defined in terms of its primary value-adding activities. Simply put, Honda should think of itself primarily as a maker and marketer of quality automobiles. McDonald’s should think of itself as providing meals of consistent quality throughout the world in a clean, friendly atmosphere, etc.

While this may seem obvious, many managers and strategists behave as though the day-to-day business of a firm is irrelevant. Hence, an oil company might buy a hotel chain, while a national chain of auto-mobile service centers is caught systematically charging customers for unnecessary repairs. What conception of business lies behind these actions? Typically it is a very narrow definition of purpose “to maximize the wealth of the share-holders,” or to achieve a set of short-term financial goals.

Managers are expected to address shareholder wealth, earnings growth, and return on assets, but the most successful firms understand that those measures should not be the primary targets of strategic management. Achieving attractive financial performance is the reward for having aimed at (and hit) the real target; i.e., maximizing the value created for the primary constituents of the firm.

Paradoxically, it is when an organization thinks of itself as a financial engine whose purpose is to generate attractive financial returns that the company is least likely to maximize those returns in the long run. Often, finance people end up shuffling a portfolio of assets in a self-destructive quest for “growth businesses” or “superior returns,” with no real understanding of the value-creation dynamics of the businesses they are acquiring and selling. Or, as with the automotive service chain, attempts to profit with-out delivering superior value end in lost business, long-term customer alienation, and corporate disgrace.

Redefining an Organization’s Self Interest

Why do managers so often choose not to focus on value creation and instead make decisions that systematically decrease the long-term value of their businesses? One reason may be that their training and education lead them to define their organizations’ interests too narrowly. This narrow view is powerfully reinforced by financial accounting systems that were well adapted to the industrial economy, but are inadequate in the information economy. The accounting and finance conventions of the industrial age are good at valuing tangible assets, but they largely ignore the value of harder-to-quantify assets like employee satisfaction, learning, R&D effectiveness, customer loyalty, etc. In the information age, those intangible assets are far more important than the bricks and mortar that traditional accounting systems were designed to measure. If management defines the organization’s self-interest (and consequently its goals) too narrowly — for example, to maximize this year’s or this quarter’s reported earnings — it will view that interest as being at odds with the interests of customers and employees. Given that perspective, in the short term every dollar spent on employee training is a dollar of lost profit. Every additional dollar squeezed out of a customer, even if it comes at the cost of poor service or price gouging, improves this quarter’s results.

This approach is based on “win/lose” or “zero-sum” thinking: The underlying assumption is that there is a fixed pie of value to be divided up among customers, employees, and investors, so the interests of the three groups must be traded off against one another (see “Zero-Sum Versus Win/Win Thinking” on p. 1).

Companies that act on this myopic conception of self-interest may stumble into a downward spiral of poor decision-making that is difficult to reverse (see “When Customers Defect”). For example, as reduced employee training and compensation lead to low employee morale and poor performance, and as underfunded R&D allows a product line to age, customers can become dissatisfied and begin to defect. In situations where customers are “locked-in” owing to large investments in proprietary equipment or some other temporary monopoly effect, they may not defect immediately. Instead, they will become increasingly alienated and defect as soon as a technology shift, regulatory change, or competitive offering allows it. When customers finally do defect, profits shrink, tempting management to cut back even further on training, compensation, and R&D, thus accelerating the spiral of customer dissatisfaction and defection.

Expanding the Pie

Alternatively, if managers define their company’s interests broadly enough to include the interests of customers and employees, an equally powerful spiral of value creation can occur. Highly motivated, well-trained, properly rewarded employees deliver outstanding service, while effective R&D investments lead to products that enjoy a significant value-adding advantage and generate higher margins. Satisfied, loyal customers (and new customers responding to word-of-mouth referrals) drive revenue growth and profit ability for investors. Clearly, the undesirable reinforcing processes described in, “When Customers Defect” can work in reverse. This win/win scenario is illustrated in the figure “Zero-Sum Versus Win/Win Thinking.”

An “expanding the pie” approach to management requires that a company alter its thinking along several dimensions

Time horizons and perceived self-interest. The time horizon within which you evaluate a business decision dramatically influences your notion of self-interest. Considered at an instantaneous moment in time, virtually any transaction is a win/lose or zero-sum game. At the moment you spend a dollar on employee training, that dollar is in fact lost to the shareholder. Conversely, in a well-designed value-creation system, almost any transaction can become a win/win or positive-sum game, if it is managed within the context of an appropriately long time frame. For example, if a company’s rate of return on the dollar invested in employee training is 20 percent (in the form of higher productivity, increased sales effectiveness, etc.), then the shareholder hasn’t lost a dollar — he has gained a stream of future cash flows that represents an attractive return on investment.

One way to build an understanding of these dynamics is to identify the key capabilities, resources, and relationships that are the basic ingredients of value creation for a particular firm, and to think of those ingredients as assets that either grow or diminish over time, depending upon how they are managed. It is useful to map a company’s key assets by building four “Strategic Balance Sheets” focused on customers, employees, processes, and investors (see “Balance Sheet Dynamics”). In building the balance sheets, managers must first decide which assets are the most important drivers of the company’s value-creation system. For example, employee learning and job satisfaction are two assets that could be tracked on the Employee Balance Sheet.

As managers identify the strategic assets that belong on the various balance sheets, they also must articulate the relationships among those assets. By tracing the dynamics through which customer, employee, and process assets accumulate, interact, and ultimately drive profitable growth, a company will be well on its way to managing the fundamentals of value creation and avoiding the pitfalls of managing by a set of narrow financial measures.

Expanding the pie between a company and its employees. In a true win/win dynamic, two or more parties aim first to create more total value, then concern themselves with distributional issues (who gets what share). When the parties focus first on dividing the “pie,” they are diverted from the innovative strategies that could have made everyone better off.

One way in which companies and employees can expand the pie is flexible work schedules. If an employee has the freedom to see to personal business (while completing all required work), the employee is better off, and the employer is likely to benefit from higher morale and the ability to attract and hold onto the best people.

A key element of win/win scenarios is that they are aimed more at creating opportunity than at minimizing costs. Outback Steakhouse has become a very successful, rapidly growing business by resisting the temptation to view a dollar of additional compensation to employees as a dollar of lost income to the shareholder. Outback has made its restaurant managers partners, attracting the best, most experienced people in the industry with a compensation system that more traditionally managed chains would view as ludicrously extravagant.

Outback’s general managers sign a five-year contract and invest $25,000 up front. In return, each manager receives 10 percent of her unit’s cash flow (earnings before interest, taxes, and depreciation) on top of a base salary of $45,000. In 1994, total manager compensation averaged $118,600. In addition, managers receive 4,000 shares of stock, which vest over the five-year contract period. All hourly employees participate in a stock ownership plan as well.

Another Outback innovation — not opening for lunch — generates benefits for investors, employees, and customers. Because they don’t compete for lunch business, restaurants can be located in less costly suburban locations instead of expensive business centers. The benefit to managers and employees is that they work only one shift per day. Outback also insists that managers work only five days per week to avoid burnout and high turnover. Finally, focusing on dinner allows the restaurants to maintain high levels of food quality

From its 1987 founding, Outback grew to 420 restaurants by the end of 1996 in a very crowded, competitive industry. Over the last five years, revenues have grown at a 55 percent annual rate, while earnings have increased 36.5 percent per year. For the year ending September 1997, Outback’s 20.9 percent return on equity placed it in the top 5 percent of restaurants (restaurant industry average ROE was 10.6 percent).

BALANCE SHEET DYNAMICS

Motivated, well-trained employees using state-of-the-art processes create outstanding customer value. Growth and profitability result, increasing investor wealth. Part of that wealth is reinvested in employees and processes, perpetuating a virtuous cycle. (Note: Each firm must identify its own strategic assets based on the company’s strategy, industry, environment, etc.)

The Outback story illustrates one of the key characteristics of successful win/win thinking: The company’s strategy is based on a systemic view of the entire value-creation process, and it seeks to align the key elements of that process. For example, if the restaurants were in higher rent locations, they might be more tempted to open at lunch to cover that cost. If managers worked longer hours, turnover would be higher and the partnership model that motivates those managers would be unworkable. If the quality of the food dropped, the number of meals from repeat customers would decrease, putting pressure on margins and tempting the owners to cut compensation to restore profits, etc.

Expanding the pie between a company and its customers. As markets become increasingly competitive and one industry after another is forced to deliver greater value in the form of lower prices, higher quality, or both, companies in those industries respond to the mounting pressure with one of two broad approaches. Many firms focus narrowly on cost-cutting measures, playing an intensified win/lose game with their suppliers (pressuring them for cost concessions) and their employees (squeezing them to work longer hours for the same compensation or to do their own jobs plus the jobs of their laid-off former colleagues). This approach can yield some short-term profit increases, but it is not sustainable. You can only squeeze so hard for so long.

A smaller number of forward thinking firms innovate their way out of this zero-sum dilemma. For example, instead of focusing on individual transactions, such as the cost of a particular product, these firms examine the entire value-creation chain associated with their products (and their customers’ use of those products) and devise ways to make the entire system more effective. This increase in effectiveness often creates enough new value that the buyer’s total costs can be significantly reduced while the supplier’s margins can be maintained or even increased.

One example of this kind of value-chain innovation is the Custom Sterile program of Allegiance, Inc., a leading healthcare cost management and product distribution company. Under the Custom Sterile program, all of the supplies needed for a particular surgical procedure are collected, packaged together, and sterilized in advance at an Allegiance facility. This helps hospitals to standardize and optimize their use of surgical supplies, and creates dramatic savings compared to the traditional process, in which expensive nursing labor locates the supplies from storage facilities within the hospital, collects them, and sterilizes them for each operation.

The innovation is also good for Allegiance. Instead of having their margins relentlessly squeezed in a series of transaction-focused, commodity sales, the company has created a relationship-focused, high-value-added offering that justifies higher margins. This is the best kind of win/win outcome: using innovation to create a value (and margin) umbrella from which all parties can benefit.

Competition and Customer Value

Another fallacy that has cropped up in much of the literature on strategy is that the purpose of business is to beat the competition. There is no question that competition, like profit, is an important dimension that companies must be aware of and manage to successfully create value in the long run. For example, a company typically creates value for customers and superior returns for investors by producing goods or services that are better than their competitors’ at meeting a set of clearly defined needs for a specific set of customers. So competition is a key variable in determining whether a product or service provides a differentiated benefit to the customer, and one that she is willing to pay a premium for. However, competition should never divert management from the primary task of creating those benefits by understanding and anticipating target customers’ needs, excelling in product and process innovation, providing outstanding service, etc

Thus, we need to think of competition not as a goal, but as part of the business environment — a key element of the context in which a firm seeks to create value. What then become critical are the alternative responses to competition undertaken by different firms, some of which are more likely to succeed than others, given the nature of the business environment. In the emerging information economy, the most successful responses to competition focus on two areas: (1) innovation that drives down the cost of products and services while increasing their quality and variety, and (2) building a deeper understanding of changing customer needs within increasingly specific market segments. Responses that are rooted in a win/lose frame-work, such as taking share from existing competitors in a zero-sum game, gaining power over customers (for example, by locking them into a proprietary computer operating system), or seeking to become the low-cost producer without simultaneously driving for world-class quality, are extremely dangerous. Many of them pit the interest of the company against the interest of the customer — a prescription for customer alienation and long-term disaster.

The most fundamental weakness of those win/lose responses to competition is that they divert management from the more important engines of value creation in the information economy: innovation, imagination, cooperation, and knowledge. Management’s time, creativity, energy, and imagination are among the scarcest organizational resources. At the same time, they are by far the resources that yield the highest returns. So it is important to recognize that all of the time, energy, and imagination expended on win/lose activities entails a high (sometimes fatal) opportunity cost. Managers are more likely to stay focused on the higher return, win/win levers if they aim not to beat the competition, per se, but to create more value than the competition — in other words, if they seek to achieve a “value-adding advantage.” And by doing so, they are likely to be more successful than their competitors in the long run.

Successful Value-Creation Strategies

Real value creation and long-term growth and profitability occurs when companies develop a continuous stream of products and services that offer unique and compelling benefits to a chosen set of customers. This means that to maintain industry leadership, a company must establish a sustainable process of value creation.

When investors buy stock in Motorola, or when customers enter into a partnership with that company, they are not basing their relationships on a particular product or set of products. Rather, both constituencies are expressing their belief that Motorola will continue to develop processes that allow it to take advantage of emerging technologies and changing market needs to create useful, profitable products and services. That ability to develop resources and effectively match them with opportunities is the core of any well-run organization’s value to customers, and the basis of its valuation by shareholders. That value creation process is, in turn, built on the capabilities and motivation of the company’s employees.

Some of the major themes that underlie successful value creation strategies in the information economy are:

• Product and process innovation
• Detailed, real-time understanding of changing needs of well-defined customer segments (frequently database enabled)
• Leveraging emerging technologies in existing markets (particularly information technology)
• Leveraging technology or regulatory changes to create new markets • Reconfiguring company and industry value chains
• Creating win/win partnerships with customers, employees, and suppliers

Pragmatic Idealism and Value Creation

By its very nature, the traditional win/lose approach to business contains a fragmented view of the interests of customers, employees, and investors. For managers who hold that fragmented view, efforts to create more value for customers or to improve employees’ transferable skills and compensation seem idealistic at best, and at worst, a naive policy that is doomed to failure. But as we have seen, the exact opposite is true. If value-focused behavior is idealistic, then the most pragmatic way to manage a company is with idealism. Such pragmatic idealism rejects the fragmented conception of “us versus them,” and embraces an integrated, systems view of business that recognizes the interdependence of all players in the value-creation process. Here is a pair of principles for managing with this systems view of business:

• Think first about creating the most value, then think about capturing part of that value as profit.
• Think of the value of a product or service as being what the customer would pay for that product or service if he had perfect information, such as knowledge of the total life-cycle costs and benefits associated with the purchase.

A great irony hovers over managers who reject these two principles. Many managers who view themselves as the heroic guardians of shareholder interests — the no-nonsense, tough-as-nails guys who run their businesses by the numbers, who pride themselves on their hyper-competitiveness, and who think that “organizational culture” and “shared values” are irrelevant fantasies concocted by out-of-touch academics — may be inadvertently running their companies into the ground and systematically destroying the wealth of their investors.

Thus, an organization can take one of two broad approaches to doing business. It can embrace the idea of pragmatic idealism, challenging itself to create value for customers, employees, and shareholders in a positive, win/win cycle. Or it can pursue a more narrowly defined (and illusory) self-interest by attempting to exploit the lack of perfect information held by the firm’s constituencies or by taking advantage of other inefficiencies in the market that allow the company to temporarily benefit at the expense of other parties and the economy as a whole. The latter approach is increasingly unworkable, even in the short run, owing to the nature of the emerging information economy.

In an environment of accelerating change — in which long-term partnerships and joint ventures must be built on mutual trust, in which employees must be committed to provide superior service and drive ongoing innovation, in which customers have access to more and more information — a course of pragmatic idealism and value creation is not only possible, it is increasingly the only viable approach.

For references and further reading, please see Creating Value: Linking the Interests of Customers, Employees, and Investors (Pegasus Communications, 1998).

Paul O’Malley (pomalley@PaulOMalley.com) is the principal of Paul O’Malley Associates (Newton, MA).

The post Value Creation and Business Success appeared first on The Systems Thinker.

Eight weeks later . . . “Let’s see what you’ve come up with. No, this is all wrong. In the first place, these ads are too small. Start over. Make them full-page and full-color. Put the headline here, the body text here, and the logo there. You need a new photograph — this one isn’t dramatic enough. Use softer lighting here. This is better, closer to what I want. This works.

“Don’t worry. You’ll get the hang of what I’m looking for — you know, what works with our customers.”

Many of us remember a time early in our careers when a manager coached us on an assignment. Although the details of the conversation varied, our boss inevitably gave us “words of wisdom” or “constructive criticism.” He or she expected us to learn in the time-honored tradition of apprenticeship, in which an expert instructs, monitors, and corrects the learner on how to do a task a certain way.

This traditional model contains a powerful implicit assumption by managers: “I’m the expert. I’ll tell you what you need to know. You’re here to learn from my experience. If you question me, you question my expertise and authority.” Unfortunately, this perspective locks both the manager and the employee into roles that don’t always serve the employee’s learning or the manager’s efforts to teach and guide. The teacher’s “performance” and expertise may take on greater importance than the learner’s improvement.

Timothy Gallwey, whose “Inner Game” philosophy has challenged most traditional coaching methodologies, often cites a valuable insight he gained about the roles of teacher and learner early in his career as a tennis pro. During a lesson, he was astonished when the student learned something before Gallwey had a chance to teach it to him. Gallwey remembers his exasperation as he thought, “How dare he . . . I haven’t shown him that yet!” Reflecting on it later, he realized that he had been more concerned with his own teaching than with the student’s learning.

What Gallwey discovered was simple — but not easy — for coaches, managers, and leaders to accept: When a coach concentrates on facilitating a person’s learning instead of on teaching, the coachee’s performance can undergo an almost magical transformation. Natural learning, based on the coachee’s learning style, happens quickly and easily — much the way we learned to walk or ride a bike. Because this kind of learning experience promotes relaxed concentration and enables us to create our own high-quality feedback, we stop trying so hard and perform almost unconsciously at increasingly effective levels. Over the years, Gallwey and others have shown that this change in focus can be effective in enhancing individual and team performance and learning in business, sports, and even music.

Partnership Coaching Defined

Effective coaching is a partnership between coach and coachee, expert and novice — a partnership whose purpose is to facilitate learning, improve performance, and enable learners to create desired results (see “Traditional Versus Partnership Coaching”). In partnership coaching, one individual works to support the learning and actions of another person or a team. Following this model, managers help people achieve what they want — through careful listening and gentle guidance — rather than tell them what they need to accomplish or to know. Shifting from a focus on teaching to a focus on learning requires a manager or coach to:

• Ask open-ended questions that focus the person’s attention on critical, relevant details rather than tell her what the coach knows.
• Create an environment that reduces interference — or negative self-talk by the learner — which can reduce the quality of the learner’s thinking and actions.
• Understand the difference between constructive criticism and edible — or usable — feedback and to make feedback learner-focused rather than teacher-focused.

INTERFERENCE MODEL

The Interference Model shows how, by reducing interference, individuals can dramatically and immediately improve their performance without learning any new skills. In an interference-free state, new learning is natural and easy

The Limitations of “Telling”

As shown in the opening example, the traditional structure used for conveying expertise and advice emphasizes telling. Although good, clear instructions are vital to the successful completion of a task, most managers find it difficult to convey information in a way that enhances a learner’s performance. In the telling mode, a coach usually assumes the employee understands what he is saying, but often the employee goes away feeling confused at best, and mistrusted and disrespected at worst.

Our informal polling of approximately 1,000 middle to senior-level managers indicates that executives use telling as a means of communication an average of 85-90 percent of the time. And yet, at least five conditions must be met for the telling approach to be effective. 1. The coach has to know exactly how to do the task. 2. The coach has to be able to articulate clearly what she does know. 3. The other person has to understand what the coach is saying. 4. The other person has to be able to translate those instructions into action. 5. The other person has to want to do the task. If one or more of these conditions is missing — which is often the case — the odds of a coach’s successfully transferring know-how to a learner are low. Moreover, the coach has likely wasted her own time, the other person’s time, and the company’s money.

According to the British author and business coaching expert Sir John Whitmore, “To tell denies or negates another’s intelligence; to ask honors it.” Yet shifting from telling to asking isn’t the only change coaches need to make in order to improve their skills; they also need to learn to ask effective questions.

The Anatomy of an Effective Question

Effective questioning uses the principle of creative tension to set up conversational structures that promote learning. According to Robert Fritz, a structure seeks to resolve the inherent tension within it, much like a stretched rubber band seeks to return to its original state. Asking a question sets up a tension that is resolved by an answer; for example, when asked “How are you?” we feel compelled to resolve the tension in the linguistic structure by responding.

A good question helps individuals put aside their assumptions regarding the correct or right answer and lets more reflective and flexible responses fill the void. The word question itself suggests a “quest” for something, inviting the respondent to create or find an answer. Thus, an effective or powerful question creates a structure in which an individual or group feels compelled to seek a resolution. In addition to providing creative tension, effective questions:

• Are nonjudgmental.
• Are open-ended (who, what, when, where, why, and how) instead of closed (requiring a yes or no answer).
• Raise awareness of the learner’s goals and current reality by broadening his perceptions.
• Reduce interference by focusing the learner’s attention.
• Make feedback “edible” — or easier for a learner to hear and use.
• Lead to deeper questions and more reflective and expansive thinking by the learner.

A powerful question asked with the wrong intention (such as getting the person to agree to something) isn’t as effective as a question posed from a place of genuine reflection and interest. When people feel cornered and manipulated, they are likely to be less forthcoming and thoughtful with their responses. “Yes/no” questions such as “Well, did you ever think about . . . ?” or “Wouldn’t you agree that . . . ?” can come across as accusatory because these queries often contain hidden assumptions about the speaker’s mental models regarding the best decision or the right answer. Such closed-ended questions can make people feel defensive and undermine a partnering relationship.

Surprisingly, tone of voice and body language carry approximately 92 percent of the meaning in conversations; the words themselves convey only 8 percent. The power of a good question can thus be lost if a manager comes across as condescending, negative, arrogant, or even overly solicitous. A leader who is well intended can still create crippling self-doubt within an employee by asking a good question with the wrong tone or inflection.

Overcoming Interference

In his article, “The Inner Game of Work: Building Capacity in the Workplace” (V8N6), Gallwey discusses the concept of internal interference and how it creates obstacles to learning (see “Interference Model” on p. 1). Gallwey defines interference as “the ways that we undermine the fulfillment or expression of our own capacities.” Interference can be internal or external; it impedes our performance by preventing us from concentrating and from receiving ongoing feedback. Gallwey has found that reducing interference can dramatically improve a person’s performance. Learning happens naturally when a person isn’t distracted by negative thoughts and can focus on what he is doing.

The key to reducing interference lies not in diagnosing it, but in asking questions that move learners’ attention away from judging their own performance to concentrating on the relevant details of the activity they are attempting to perform. For example, when an employee appears flustered because she doesn’t know how to resolve a problem, asking her what she is noticing about the situation or the problem, and what is and isn’t working toward resolving it, can increase her self-awareness and reduce her self-doubt, enabling her to focus calmly on the issue at hand. This self-awareness gives coachees pure, nonjudgmental, and noncritical feedback about what is actually happening. At the same time, coaches need to ask themselves, “Am I increasing or decreasing interference in this conversation?”

What, then, might the session in the opening example have sounded like if the coach had used questions to reduce the coachee’s internal interference and increase her focus?

“I want you to create the new print ad campaign. Here are copies of what we’ve done in the past. What do you think about the strategy and format we used? Here’s data from focus groups and information on how well the ads pulled. What do you think we could have done to increase those numbers? Our deadline is in eight weeks. How long do you think you will need? When can you tell me if this deadline is realistic?”

First coaching meeting: “I’ve had a chance to look at the first version of the new print ad campaign. First, I’m curious about your thinking behind this strategy. What about this style and format appeals to you? What about this approach do you think will appeal to our customers? What about these ads works better than our previous campaign?

“What concerns do you have, if any, about this strategy? Where do you think the trends for print ads are headed? Is there anything you’d like to do differently, given more time or money?

“I’m a little concerned about the size of the ads and the lack of color, but maybe I’m underestimating the impact. I guess I need to know more before I’ll feel completely comfortable with changes that feel this drastic. How will our customers respond to such changes? Will the ads cost more or less to produce? What is the impact on our overall budget?”

In the example above, the manager expresses little judgment regarding what is right or wrong, good or bad, about the proposed ad campaign. She asks open-ended, not yes or no, questions. Her intention, style, and tone convey a desire to learn the employee’s perspective and to help him think for himself and draw his own conclusions. The employee in this scenario is likely to experience much less interference than in the scenario at the beginning of the article, and thus should experience greater learning, clearer thinking, and improved performance. The responsibility for learning is placed on the employee — not on the manager. This employee will probably feel that the manager is “on his side,” supporting his development and achievement of desired results.

“Edible” Feedback

One of the most important ways to improve an employee’s performance and create structures for learning is clear, relevant feedback about current reality — what’s working and not working about the individual’s actions. The traditional feedback model consists of an expert offering so-called “constructive” criticism. But how do people generally feel when they hear, “I have some feedback for you”? Their level of interference usually increases. They may think, “Oh, no . . . I’m about to be judged, slam-dunked, pulverized. I hope I can defend myself, or maybe even blame someone else. Let’s get this over with, or maybe I’ll just zone out.” Meanwhile, they generally don’t hear or consider the coach’s observations simply because they are not edible.

An edible suggestion is one that the coachee can actually take in and digest because it doesn’t overload her with too much negative information, too much advice, or too many suggestions to remember or internalize. This feedback model shifts the focus away from the traditional mode of the manager telling the employee what went right and wrong to one in which the employee discovers for herself what she learned. By helping the performer “debrief her own perceptions of what did and didn’t work, the coach leverages our tendency to believe our own data and observations, rather than those provided by others.

Feedback should do exactly what the word says: Feedback information that nourishes the performer, increases self-awareness and focus, and allows him to internalize useful data for learning. Providing feedback in this manner fosters learning and improvement that are intrinsically, rather than extrinsically, motivated (see “How to Give Edible Feedback”). Performer-based feedback also creates trust and better, more reflective working relationships, because the data is more easily digested. This focus enables the coach to function as a mirror, reflecting back the appropriate, relevant information in a nonjudgmental way.

The “GROW” Model of Coaching

Partnership coaching involves shifting one’s mind-set from teaching, training, and controlling to asking coachees for their desired outcomes and ideas for achieving them; reducing coachees’ internal interference; and learning to give useful, edible feedback. All these elements are woven into a process for conducting a successful coaching session described by Sir John Whitmore in his book, Coaching for Performance. His “GROW” model can help guide coaching conversations to more meaningful and realistic resolutions (see “The GROW Model” on p. 5). Although there are many effective ways to coach in a partnership style, the GROW model provides a useful framework in which the coach guides the coachee toward articulating her goals and achieving desired results. By using effective questions in a nonjudgmental tone, the coach shows respect for the coachee and helps her to take ownership for determining the path to reach her goal.

G=GOALS

The coach and coachee agree on session goals and long-term goals. To set session goals, the coach asks questions such as:

• What would you like to accomplish in the time we have available?
• What would make this time well spent?
• What would you like to achieve today? To set long-term goals, she asks:
• What would ultimate success look like to you?
• If you could create anything you want, what might that be?

R=CURRENT REALITY

Centering on current reality means describing the situation as accurately as possible, challenging assumptions that might be blocking more effective thinking and action, and raising awareness of the relevant details of what is currently happening. Good coaching involves following the coachee’s interests and thoughts and exploring what he has tried so far, without judging. Questions about current reality might include:

• How do you know your perception of X is accurate? How can you be sure?
• Whom else might you check with to get more data about the larger perspective?
• What have you tried so far?
• What are your beliefs about this particular situation? This person? The other department?

O=OPTIONS

The first challenge here is to help the coachee create as many options for potential actions toward the goal as possible without judging the ideas’ merit or practicality. The focus is on the quantity — not quality — of options. Building on the ideas and then choosing among them comes later. The idea is for the learner to stretch the boundaries of his thinking and to use creativity to unlock options he might not otherwise consider.

Once the coachee completes his list of options for action, the coach may offer any ideas she might have thought of while the coachee was brainstorming. Examples of coaching questions at this stage might include:

• If money, time, and resources were no obstacle, what options might you choose?
• What are all the different things you might do?
• What else might you do? What else?
• If you were to ask X person, what might he or she suggest?
• Who else could help?
• What might some “sky is the limit” thinking sound like?
• Would you like to hear some ideas that have occurred to me while you were brainstorming?

At some point, the coachee’s well of ideas will run dry. Now he should look over the list and select those options that seem most promising. The coach can help clarify priorities by asking questions such as:

• Which options would you like to explore further or take action on right away?
• Which would you be willing to implement?
• How would you rate these options from high to low?
• Where would you like to begin?

W=WHAT’S NEXT?

This is the stage for committing to action — stating an intention that is time-phased and observable, identifying potential obstacles, and aligning support from collaborators. Possible questions might include:

• What are you going to do and by when?
• What’s next? What steps are involved?
• How might you minimize the obstacles?
• What might be some unintended consequences of taking these actions?
• How will you collect data for feedback over time as you progress?
• On a scale of one to ten, how certain are you that you will do this?

Self-Coaching

One of the remarkable things about partnership coaching is that managers don’t have to be subject matter experts in order to coach others who are — they just have to be expert coaches. Sometimes, having less expertise on the subject than the coachee frees an instructor from needing to share his knowledge; this “knowing” can get in the way of asking good questions.

Coaches who want to improve their skills can solicit feedback as part

THE GROW MODEL

The GROW Model illustrates the process of helping others clarify what they want, what they have now, options for achieving results, and a plan for action.

of every learning session by asking learners:

• What about the session worked well?
• What didn’t work as well?
• What might I do differently next time to support you more effectively?

Coaches can also guide themselves during a coaching conversation and gain additional learning afterwards by asking:

• What’s happening right now?
• Where is my coachee’s focus?
• How much interference is she experiencing? Where is it coming from?
• When I made that statement, what happened with her body language?

• What cues does she give me to sit quietly and let her think?
• What judgments appeared in my thinking?
• On a scale of one to ten, how would I rate our level of partnership?
• What worked and didn’t work for us in that coaching session?

These questions give managers the opportunity to make adjustments, test assumptions, and experiment with new possibilities.

Leveraging Partnership Coaching

At its most effective, partnership coaching is simply a generative conversation in which the coach asks nonjudgmental, open-ended questions that sharpen the coachee’s focus and increase her awareness of goals, current reality, and possible options for action. In a natural and easy way, it reduces interference and structures feedback for intrinsically motivated learning. This coaching model can leverage learning for individuals, teams, and organizations by helping them improve performance more quickly than in traditional forms of coaching.

As partnership coaching becomes part of an organization’s culture, every leader becomes a steward of learning and a facilitator of performance. Learners come to trust that managers are truly on their side, supporting their learning and development as a partner and not as a disciplinarian. Partnership coaching can be a powerful tool for implementing the principles of organizational learning by facilitating personal mastery, team learning, and shared vision.

Diane Cory is a facilitator, coach, and consultant whose areas of expertise include organizational learning, servant leadership, storytelling, creativity, and coaching.

Rebecca Bradley (Rebecca@ partnershipcoaching.com), president of Atlanta-based Partnership Coaching, Inc., is an executive coach and consultant whose focus is helping individuals and teams improve performance.

The post Partnership Coaching appeared first on The Systems Thinker.

You are an engineer working on two projects within your business unit. These are demanding projects, and you give them your best. You respect your teammates and are accountable to your project managers. But when you face a problem that stretches your knowledge, you turn to people like Jake, Sylvia, and Robert. Even though they work on their own projects in other business units, they are your real colleagues. You all go back many years. They understand the issues you face and will explore new ideas with you. And even Julie, who now works for one of your suppliers, is only a phone call away. These are the people with whom you can discuss the latest developments in the field and troubleshoot each other’s most difficult design challenges. If only you had more time for these kinds of interactions.

You are a CEO and, of course, you are responsible for the company as a whole. You take care of the “big picture.” But you have to admit that for you, too, the company is mostly an abstraction: names, numbers, processes, strategies, markets, spread-sheets. Sure, you occasionally take tours of the facilities, but on a day-to-day basis, you live among your peers — your direct reports with whom you interact in running the company, some board members, and other executives with whom you play golf and discuss a variety of issues.

We frequently say that people are an organization’s most important resource. Yet we seldom understand this truism in terms of the communities through which individuals develop and share the capacity to create and use knowledge. Even when people work for large organizations, they learn through their participation in more specific communities made up of people with whom they interact on a regular basis. These “communities of practice” are mostly informal and distinct from organizational units (see “Communities of Practice” on p. 1).

Although we recognize knowledge as a key source of competitive advantage in the business world, we still have little understanding of how to create and leverage it in practice. Traditional knowledge management approaches attempt to capture existing knowledge within formal systems, such as databases. Yet systematically addressing the kind of dynamic “knowing” that makes a difference in practice requires the participation of people who are fully engaged in the process of creating, refining, communicating, and using knowledge. Thus, communities of practice are a company’s most versatile and dynamic knowledge resource and form the basis of an organization’s ability to know and learn.

Defining Communities of Practice

Communities of practice are everywhere. We all belong to a number of them — at work, at school, at home, in our hobbies. Some have a name; some don’t. We are core members of some, and belong to others more peripherally. You may be a member of a band, or you may just come to rehearsals to hang around with the group. You may lead a group of consultants who specialize in telecommunication strategies, or you may only stay in touch to keep informed about developments in the field. Or you may have just joined a community and are still trying to find your place in it. Whatever form our participation takes, most of us are familiar with the experience of belonging to a community of practice.

Members of a community are informally bound by what they do together — from participating in lunch-time discussions to solving difficult problems—and by what they have learned through their mutual engagement in these activities. A community of practice is thus different from a community of interest or a geographical community, neither of which implies a shared practice. A community of practice defines itself along three dimensions:

• What it is about: its joint enterprise as understood and continually renegotiated by its members
• How it functions: the relationships of mutual engagement that bind members together into a social entity
• What capability it has produced: the shared repertoire of communal resources (routines, sensibilities, artifacts, vocabulary, styles, etc.) that members have developed over time.

Communities of practice also move through various stages of development characterized by different levels of interaction among the members and different kinds of activities (see “Stages of Development” on p. 3).

Communities of practice develop around things that matter to people. As a result, their practices reflect the members’ own understanding of what is important. Even when a community’s actions conform to an external mandate, it is the community — not the mandate — that produces the practice. In this sense, communities of practice are self-organizing systems.

Communities of Practice in Organizations

Communities of practice exist in any organization. They can be found:

• Within businesses: Communities of practice arise as people address recurring sets of problems together. So, claims processors within an office form communities of practice to deal with the constant flow of information they need to process. By participating in such a communal memory, they can do the job without having to remember everything themselves.
• Across business units: Important knowledge is often distributed in different business units. People who work in cross-functional teams thus form communities of practice to keep in touch with their peers in various parts of the company and maintain their expertise. When communities of practice cut across business units, they can develop strategic perspectives that transcend individual product lines. For instance, a community of practice may propose a plan for equipment purchases that no one business unit could have come up with on its own
• Across company boundaries: In some cases, communities of practice become useful by crossing organizational boundaries. For instance, in fast-moving industries, engineers who work for suppliers and buyers alike may form a community of practice to keep up with constant technological changes.Communities of practice are not a new kind of organizational unit; rather, they are a different cut on the organization’s structure — one that emphasizes the learning that people have done together rather than the unit they report to, the project they are working on, or the people they know. Communities of practice differ from other kinds of groups found in organizations in the way they define their enterprise, exist over time, and set their boundaries:
• A community of practice is different from a business or functional unit in that it defines itself in the doing, as members develop among themselves their own understanding of what their practice is about. This living process results in a much richer definition than a mere institutional charter. As a consequence, the boundaries of a community of practice are more flexible than those of an organizational unit. The membership involves whoever participates in and contributes to the practice. People can participate in different ways and to different degrees. This permeable periphery creates many opportunities for learning, as outsiders and newcomers learn the practice in concrete terms, and as core members gain new insights from contacts with less-engaged participants.
• A community of practice is different from a team in that the shared learning and interest of its members are what keep it together. It is defined by knowledge rather than by task, and it exists because participation has value to its members. It does not appear the minute a project is started and does not disappear with the end of a task. It takes a while to come into being and may live long after a project is completed or an official team has disbanded.
• A community of practice is different from a network in the sense that it is “about” something; it is not just a set of relationships. It has an identity as a community, and thus shapes the identities of its members. A community of practice exists because it produces a shared practice as members engage in a collective process of learning.People belong to communities of practice at the same time as they belong to other organizational structures. In their business units, they shape the organization. In their teams, they take care of projects. In their networks, they form relationships. And in their communities of practice, they develop the knowledge that lets them do these other tasks. This informal fabric of communities and shared practices makes the official organization effective and, indeed, possible.

  Communities of practice have different relationships with the official organization. The table “Community’s Relationship to Official Organization” on p. 4 shows different degrees of institutional involvement, but it does not imply that some relationships are better or more advanced than others. Rather, these distinctions are useful because they draw attention to the issues that can arise in the interaction between the community of practice and the organization as a whole.

The Importance to Organizations

Communities of practice are important to the functioning of any organization, but they become crucial to those that recognize knowledge as a key asset. From this perspective, an effective organization comprises a constellation of interconnected communities of practice, each dealing with specific aspects of the company’s competencies — from the peculiarities of a long-standing client, to manufacturing safety, to technical inventions. Knowledge is created, shared, organized, revised, and passed on within and among these communities. In a deep sense, it is by these communities that knowledge is “owned” in practice.

Communities of practice fulfill a number of functions with respect to the creation, accumulation, and diffusion of knowledge in an organization:

• They are nodes for the exchange and interpretation of information. Because members have a shared understanding, they know what is relevant to communicate and how to present information in useful ways. As a consequence, a community of practice that spreads throughout an organization is an ideal channel for moving information — such as best practices, tips, or feedback across organizational boundaries.
• They can retain knowledge in “living” ways, unlike a database or a manual. Even when they routinize certain tasks and processes, they can do so in a manner that responds to local circumstances and thus is useful to practitioners. Communities of practice preserve the tacit aspects of knowledge that formal systems cannot capture. For this reason, they are ideal for initiating newcomers into a practice.
• They can steward competencies to keep the organization at the cutting edge. Members of these groups discuss novel ideas, work together on problems, and keep up with developments inside and outside a firm. When a community commits to being on the forefront of a field, members distribute responsibility for keeping up with or pushing new developments. This collaborative inquiry makes membership valuable, because people invest their professional identities in being part of a dynamic, forward-looking community
• They provide homes for identities. They are not as temporary as teams, and unlike business units, they are organized around what matters to their members. Identity is important because, in a sea of information, it helps us sort out what we pay attention to, what we participate in, and what we stay away from. Having a sense of identity is a crucial aspect of learning in organizations. Consider the annual “computer drop” at a semiconductor company that designs both analog and digital circuits. The computer drop became a ritual by which the analog community asserted its identity. Once a year, their hero would climb the highest building on the company’s campus and drop a computer, to the great satisfaction of his peers in the analog gang. The corporate world is full of these displays of identity, which manifest themselves in the jargon people use, the clothes they wear, and the remarks they make. If companies want to benefit from people’s creativity, they must support communities as a way to help them develop their identities.Communities of practice structure an organization’s learning potential in two ways: through the knowledge they develop at their core and through interactions at their boundaries. Like any asset, these communities can become liabilities if their own expertise becomes insular. It is therefore important to make sure that there is enough activity at their boundaries to renew learning. For while the core is the center of expertise, radically new insights often arise at the boundary. Communities of practice truly become organizational assets when their core and their boundaries are active in complementary ways. To develop the capacity to create and retain knowledge, organizations need to build institutional and technological infrastructures that do not dismiss or impede these communities, but rather recognize, support, and leverage them.

STAGES OF DEVELOPMENT

Communities of practice move through various stages of development characterized by different levels of interaction among the members and different kinds of activities.

Developing and Nurturing Communities of Practice

Just because communities of practice arise naturally does not mean that organizations can’t do anything to influence their development. Most communities of practice exist whether or not the organization recognizes them. Many are best left alone — some might actually wither under the institutional spotlight. And some may need to be carefully seeded and nurtured. But a good number will benefit from some attention, as long as this attention does not smother their self-organizing drive.

Whether these communities arise spontaneously or come together through seeding and nurturing, their development ultimately depends on internal leadership. Certainly, in order to legitimize the community as a place for sharing and creating knowledge, recognized experts need to be involved in some way, even if they don’t do much of the work. But internal leadership can take many forms:

• The inspirational leadership provided by thought leaders and recognized experts
• The day-to-day leadership provided by those who organize activities
• The classificatory leadership provided by those who collect and organize information in order to document practices
• The interpersonal leadership provided by those who weave the social fabric
• The boundary leadership provided by those who connect the community to other communities
• The institutional leadership provided by those who maintain links with other organizational constituencies, in particular the official hierarchy
• The cutting-edge leadership provided by those who lead “out-of-the-box” initiatives

These roles may be formal or informal, and may be concentrated in a core group or more widely distributed. But in all cases, leadership must have intrinsic legitimacy in the community. To be effective, therefore, managers and others must work with communities of practice from the inside rather than merely attempt to design them or manipulate them from the outside. Nurturing communities of practice in organizations includes:

Legitimizing Participation. Organizations can support communities of practice by recognizing the work of sustaining them; by giving members the time to participate in activities; and by creating an environment in which the value they bring is acknowledged. To this end, it is important to have an institutional discourse that includes this dimension of organizational life. Merely introducing the term “communities of practice” into an organization’s vocabulary can have a positive effect by giving people an opportunity to talk about how their participation in these groups contributes to the organization as a whole.

Negotiating Their Strategic Context.In what Richard McDermott calls “double-knit organizations,” people work in teams for projects but belong to longer-lived communities of practice for maintaining their expertise. The value of team-based projects that deliver tangible products is easily recognized, but it is also easy to overlook the potential cost of their short-term focus. The learning that communities of practice share is just as critical, but its longer-term value is more subtle to appreciate. Organizations must therefore develop a clear sense of how knowledge is linked to business strategies and use this understanding to help communities of practice articulate their strategic value. This involves a process of negotiation that goes both ways. It includes understanding what knowledge — and therefore what practices — a given strategy requires. Conversely, it also includes paying attention to what emergent communities of practice indicate with regard to potential strategic directions.

Being Attuned to Real Practices. To be successful, organizations must leverage existing practices. For instance, when the customer service function of a large corporation decided to combine service, sales, and repairs under the same 800 number, researchers from the Institute for Research on Learning discovered that people were already learning from each other on the job while answering phone calls. IRL then instituted a learning strategy for combining the three functions that took advantage of this existing practice. By leveraging what they were already doing, workers achieved competency in the three areas much faster than they would have through traditional training. More generally, the knowledge that companies need is usually already present in some form, and the best place to start is to foster the formation of communities of practice that leverage the potential that already exists.

Fine-tuning the Organization. Many elements in an organizational environment can foster or inhibit communities of practice, including management interest, reward systems, work processes, corporate culture, and company policies. These factors rarely determine whether people form communities of practice, but they can facilitate or hinder participation. For example, issues of compensation and recognition often come up. Because communities of practice must be self-organizing to learn effectively and because participation must be intrinsically self-sustaining, it is tricky to use reward systems as a way to manipulate behavior in or micro-manage the community. But organizations shouldn’t ignore the issue of reward and recognition altogether. Rather, they need to adapt reward systems to support participation in learning communities; for instance, by including community activities and leadership in performance review discussions. Managers also need to make sure that existing compensation systems do not inadvertently penalize the work involved in building communities.

Providing Support.resources, such as outside experts, travel, meeting facilities, and communications technology. A company-wide team assigned to nurture community development can help address these needs. This team typically Communities of practice are mostly self-sufficient, but they can benefit from some

• provides guidance and resources
• helps communities connect their agenda to business strategies
• encourages them to move forward and remain focused on the cutting edge
• ensures they include all the right people
• helps them link to other communities

Such a team can also help identify and eliminate barriers to participation in the structure or culture of the overall organization; for instance, conflicts between short-term demands on people’s time and the need to participate in learning communities. In addition, just the existence of such a team sends the message that the organization values the work and initiative of communities of practice.

The Art of Balancing Design and Emergence

Communities of practice do not usually require heavy institutional infrastructures, but their members do need time and space to collaborate. These communities do not require much management, but they can use leadership. They self-organize, but they flourish when their learning fits with their organizational environment. The art is to help such communities find resources and connections without overwhelming them with organizational meddling. This need for balance reflects the following paradox: No community can fully design the learning of another; but conversely, no community can fully design its own learning.

Acknowledgments:This article reflects ideas and text co-created for presentations with my colleagues Richard McDermott of McDermott & Co., George Por of the Community Intelligence Labs, Bill Snyder of the Social Capital Group, and Susan Stucky of the Institute for Research on Learning. Thanks to all of them for their personal and intellectual companionship.

Etienne Wenger, PhD, is a globally recognized thought leader in the field of learning theory and its application to business. A pioneer of the “community of practice” research and author of Communities of Practice: Learning, Meaning, and Identity (Cambridge University Press, 1998), he helps organizations apply these ideas through consulting, workshops, and public speaking.

The post Communities of Practice: Learning as a Social System appeared first on The Systems Thinker.

The struggle to have both a good personal life and a good career arises from a dominant societal image of the ideal worker as “career-primary,” the person who is able and willing to put work first, and for whom work time is infinitely expandable. This view translates into work practices that include dawn meetings; planning sessions that run into the evening, often ending with the suggestion to “continue this over dinner”; and training programs requiring long absences from home. Commitment is measured by what one manager proudly declared as his definition of a star engineer: “someone who doesn’t know enough to go home at night.” At lower levels in the organization, the belief in the dominance of work translates into tight controls over worker time and flexibility.

In situations where “ideal workers” are assumed to be those whose first allegiance is to the job, people with career aspirations go to great lengths to keep personal issues from intruding into work. Some people give false reasons for leaving work early: They feel that attending a community board or civic meeting is not likely to brand them as uncommitted, while taking a child for a physical might. Some secretly take children on business trips. Others leave their computers on while picking up children from sporting events, hoping that colleagues passing by will think they are in a meeting.

When Individuals Try to Change

BUSINESS CASE FOR RELINKING WORK AND FAMILY

As management’s support of family-sensitive work practices rises, employees experience less work-family conflict, leading to greater worker satisfaction and better quality of work.

Some workers, because of their positions, their financial resources, or their perceived value as employees, are themselves able, at times, to forge satisfactory links between work and family. The rest simmer with discontent. In all cases, energy and loyalty are diverted unnecessarily from the organization (see “Can Your Company Benefit from Relinking?”). Because people feel powerless to deal with these concerns on their own, relevant work-related issues cannot be discussed at the collective level, where real systemic change might yield significant business and personal results.

When individuals change, but the system remains the same, there may be unexpected negative consequences for both. For example, one team leader arranged a four-day schedule to cut down on a long commute and to spend more time with her children. Not only did this arrangement serve her needs, but because the team leader rotated group members to take her place on the fifth day, she developed their self-management skills. By all measures, including productivity and satisfaction, the group was thriving. But the arrangement did not last long. In the end, the manager was stripped of her supervisory duties and moved to the bottom category of performance. Management regarded the team leader’s efforts as a negative reflection of her future potential and management capability. Similarly, a full-time sales technician who negotiated earlier hours was forced to give up the arrangement because her managers were unwilling to adjust their daily demands to conform to the schedule they had approved. From the beginning, the managers imposed so many “exceptions” that the employee was putting in extra hours and was unable to pick up

her child at school much of the time — the reason she wanted the earlier hours in the first place. In the end, she reverted to her old schedule and became very disillusioned.

In this context, it is not surprising that managers typically view requests for flexibility as risky to grant. Even though they may sympathize and want to grant such requests, especially when it comes to their most valued employees, they worry about the potential negative consequences of allowing such arrangements. Not only do they worry that productivity might suffer, but they fear that, in negotiating and monitoring these special arrangements, they might have an increased workload. As a result, managers often end up sending negative signals indicating that the use of flexible, family-friendly benefits is a problem for them and for the company as a whole.

The important point is that it is problematic when work-family issues are viewed as individual concerns to be addressed only through flexible work practices, sensitive managers, and individual accommodations. This approach often fails the individuals involved, and it may lead to negative career repercussions. More important, by viewing these issues as problems, companies miss opportunities for creative change. For example, management could have perceived the unusual arrangement of the team leader with the four-day schedule as a chance to embrace this innovative work practice and to rethink the criteria for effective management. Similarly, the revised schedule of the sales technician could have been an opportunity to rethink the way time is used in the organization.

Consider, also, the following example: two workers, one in sales and one in management, requested a job-sharing arrangement that would have allowed each of them to spend more time with their families. In an extensive proposal, they outlined how they would meet business needs under the new arrangement. As an added benefit, they also suggested a way to revamp the management development process so that a sales representative, working under the guidance of a sales manager, took on limited management duties. Such an apprenticeship model promised to be a significant improvement over the existing practice of “throwing sales people into management” with little training. Nevertheless, the company rejected the proposal because it was seen as stemming from a private concern (a desire for more personal time) rather than a work concern (a wish to increase the organization’s effectiveness), and the opportunity was missed.

Thus, despite the potential benefits to the company, making the link between work and employees’ personal lives in today’s business environment is, to say the least, not easy. Significant organizational barriers — for example, assumptions about what makes a good worker, how productivity is achieved, and how rewards are distributed — militate against such linkage. Work-family benefits are often designed and administered by the human resource function but implemented by line managers. Associating strategic initiatives with line managers and work-family concerns with human resources reinforces perceptions that business issues are separate, conceptually and functionally, from individuals’ personal lives.

Putting Work-Family Issues on the Table

Putting work-family concerns on the table as legitimate issues for discussion in the workplace turns out to be liberating. By talking about such issues, people realize that they are not alone in struggling to meet work and family/ personal demands. Such discussions help people see that the problems are not solely of their own making, but stem from the way work is done today. The process of transforming personal issues to the collective level engages people’s interest and leads to more creative ways of thinking. It also provides a strategic business opportunity that, if exploited correctly, can lead to improved bottom-line results (see “Business Case for Relinking Work and Family” on p. 1).

For example, at one site we documented the work practices of “integrated” individuals — people who link the two spheres of their life in the way they work. We found that integrated individuals draw not only on skills, competencies, and behaviors typical of the public, work sphere, such as rationality, linear thinking, assertiveness, and competition, but also on those associated with the private, personal sphere, such as collaboration, sharing, empathy, and nurturing. Their work practices include working behind the scenes to smooth difficulties between people that might disrupt the project, going out of their way to pass on key information to other groups, taking the time from their individual work to teach someone a new way of doing something, building on rather than attacking others’ ideas in meetings, and routinely affirming and acknowledging the contributions of others. We showed the value-added nature of this work—the way it prevented problems, enhanced organizational learning, and encouraged collaboration. Offering a new vision of the ideal worker as an integrated individual, someone who brings skills to the job from both spheres of life, helps the organization recognize the importance of hiring and retaining such individuals.

Where appropriate, we also pointed out to management the dissonance between policy and practice. For example, at an administrative site, despite the presence of a wide range of work-family policies, managers limited their use to very minor changes in daily work times. Employees dealt with the situation by “jiggling the system” on an ad hoc, individual basis to achieve the flexibility they needed, often by using sick days or vacation time. Thus, for instance, a man whose mother was chronically ill had to take a combination of sick days and vacation days to be with her. The costs to the site for this companywide behavior were considerable in terms of unplanned absences, lack of coverage, turnover, and backlash against people who took the time they needed. It also created employee mistrust of an organization that claimed it had benefits but made using them so difficult that the result was lower morale and widespread cynicism.

By bringing family to bear on work, we also focused attention on the process by which work is accomplished (see “How Long Hours Become the Norm”). In one sales environment, for example, we found that a sales team habitually worked around the clock to complete proposals for prospective customers. In the morning, the workers were rewarded with cheers from managers and coworkers, complimenting them on their commitment and willingness to get the job done. In response to our interventions, one manager recognized that this behavior reflected poor work habits and made it tough on these people’s family lives. Not only were their families suffering, but it took several days for these workers to recover, during which time they were less productive.

The manager told his team that their behavior demonstrated an inability to plan. He also began to share his perceptions with other managers. As a result, the sales team began to recognize and reward new work habits such as planning ahead and anticipating problems rather than waiting until they were crises.

We have found that changes in work practices can be brought about by looking at work through a work-family lens, linking what is learned from that process to a salient business need, and pushing for change at each step of the process (see “The Synergy of Linking Work and Family”). We begin to make the systemic link between work practice and work-family integration by engaging three lines of questioning:

• How does work get done around here?
• What are the employees’ personal stories of work-family integration?
• What is it about the way work gets done around here that makes it difficult (or easy) to integrate work and personal life so that neither one suffers? Ultimately, however, success also depends on the existence of two specific conditions:
• a safe environment that minimizes individual risk, freeing employees to take part in the change; and
• room in the process for engaging people’s resistance — in other words, addressing their objections, concerns, and underlying feelings with a view toward creating options that were not previously envisioned.<;i>

Creating Safety and Engaging Resistance

By giving people permission to talk about their feelings and their personal dilemmas in the context of redesigning work, a surprising level of energy, creativity, and innovative thinking gets released. But raising these issues may not be easy for those who fear they will be branded as less committed or undependable if they acknowledge such difficulties. At the same time, managers who are used to viewing gains for the family as productivity losses for the business may fear they will bear all the risks of innovation.

Therefore, collaboration and sharing the risks across the organization are important aspects of the process. In concrete terms, this means getting some sign from senior managers that they are willing to suspend, if only temporarily, some of the standard operating procedures that the work groups have identified as barriers both to work-family integration and to productivity. Such a signal from upper management also helps people believe that cultural change is possible and provides higher-level support to individual managers seeking to bring about change. The point is that employees need concrete evidence that they are truly able to control some of the conditions that affect their own productivity. And managers need assurance that they will not be penalized for experimenting in this fashion.

The process of relinking work to family creates resistance because it touches core beliefs about society, success, gender roles, and the place of work and family in our lives. We found, however, that such resistance almost always points to something important that needs to be acknowledged and addressed collaboratively.

Engaging with this type of resistance means listening to and learning from people’s objections, incorporating their concerns and new ideas, and working together to establish a dual agenda. To be effective, the process cannot be shortchanged. It requires trust, openness, and a willingness to learn from others.

Challenges

The next challenge is how to sustain these efforts over the long term and to diffuse them beyond the local sites. Lasting organizational change requires mutual learning by individuals, by the group, and by the system as a whole. It is important to continue to keep the double agenda on the table, ensuring that benefits from the change process continue to accrue to employees and their families as well as to the organization. If not, the individual energy unleashed will dissipate — triggering anger and mistrust within the organization.

What’s more, if local changes are to be sustained and if lessons from them are to be diffused, the work needs to be legitimized so that operational successes become widely known. Given the tendency to marginalize and individualize work-family issues, the overt support of senior management is essential here. Such support reinforces “work-family” as a business issue that is owned by the corporation as a whole.

Lasting change also requires an infrastructure, a process for carrying the lessons learned and the methodology used to other parts of the organization. In one organization, that process took the form of an operations steering committee working hand-in-hand with the research team to carry on the work in other parts of the corporation.

Our experience also suggests that multiple points of diffusion must exist. We sought opportunities, for instance, to present our work as part of special events as well as operational reviews and to look for internal allies among line managers, people involved in organizational change, and so on. Diffusion is also a challenge because, as people reflect on how the various operational pilots meet business needs, they tend to want to pass on to other teams only the results that yielded the productivity gains, rather than information about the process itself. This tendency shortchanges the process and seriously undermines the chances for replicating its success and sustainability.

Conclusion

As corporations continue to restructure and reinvent themselves, linking such change efforts to employees’ personal concerns greatly enhances their chances for success. Such relinking energizes employees to participate fully in the process because there are personal benefits to be gained. It also uncovers hidden or ignored assumptions about work practices and organizational cultures that can undermine the changes envisioned.

But relinking work and family is not something that can be accomplished simply by wishing it were so or by pointing out the negative consequences of separation. It is something that touches the very core of our beliefs about society, success, and gender. And it implies rethinking the place of families and communities and a new look at how we can nurture and strengthen these vital building blocks of our society.

The assumed separation of the domestic and nondomestic spheres breeds inequality, since present practices, structures, and policies — at all levels of society — favor the economic sphere above all others. As a result, employment concerns are assumed to take precedence over other concerns; achievement in the employment sector is assumed to be the major source of self-esteem and the measure of personal success. And, since employment skills are most highly valued and compensated, they dominate government, educational, and organizational policy

In the end, the goal of relinking work and family life is not simple and it is not just about being “whole.” It is about shifting to a more equitable society in which family and community are valued as much as paid work is valued, and where men and women have equal opportunity to achieve in both spheres. Such change is possible and provides real benefits not only to individuals and their families, but also to business and society.

Suggested Further Reading

Bailyn, L., Breaking the Mold: Women, Men and Time in the New Corporate World. Free Press, 1993.

Hochschild, A., The Second Shift: Working Parents and the Revolution at Home. Avon Books, 1997.

Perlow, L., Finding Time: How Corporations, Individuals, and Families Can Benefit from New Work Practices. Cornell University Press, 1997.

Schor, J., The Overworked American: The Unexpected Decline of Leisure. Basic Books, 1993.

This article is excerpted from Relinking Life and Work: Toward a Better Future (Pegasus Communications, 1998), which is an edited version of a report originally published by the Ford Foundation.

Rhona Rapoport is co-director of the Institute of Family and Environmental Research in London, England. Lotte Bailyn is the T Wilson (1953) Professor of Management at the MIT Sloan School of Management. Deborah Kolb is professor of management at the Simmons Graduate School of Management and director of the Simmons Institute on Gender and Organizations. Joyce K. Fletcher is professor of management at the Simmons Graduate School of Management. Contributing authors include Dana E. Friedman, Barbara Miller, Susan Eaton, and Maureen Harvey.

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The Machine Metaphor

The most significant guiding metaphor of the Industrial-Age organization has been the assembly line. In the 20th century, this image has led us to think of our organizations and, ultimately, of ourselves, as machines. In the 200 years of the Machine Age, we’ve made all aspects of our society conform to fit this metaphor. Think of the expressions that have become commonplace in our language: “It runs like clockwork”, “The pace of change is accelerating,” or “human resources.” We’ve come to view humans as devices that we can program to behave in certain ways and that should be able to produce a given amount of output over a set period of time. Corporations are machines for making money. Schools are assembly lines for producing graduates — those who move more slowly than the assembly line are defined as “stupid” or “disabled.” Managers’ primary job is “control.”

In his book, The Living Company, Arie de Geus poses the simple question, What would the implications be if we saw a company as a human community — a living being — rather than as a machine for making money? He goes on to explore that question from the perspective of governance, management, planning, financial control — a whole host of practical issues in any enterprise. In many organizations today, people are beginning to recognize the limits to the Machine-Age perspective. They come to accept that our traditional system of management, based on the purpose of maximizing the shareholders’ return, is the most well-designed system imaginable to produce consistently mediocre results. Companies like VISA, Shell, Toyota, Scania, and Interface have found that the key to success isn’t obsessively measuring costs and profits; it’s nurturing the passion, imagination, creativeness, persistence, patience, caring, and desire to contribute of human beings. For, if you don’t have those soft, unmeasurable things, you will never have an enterprise that can be highly successful. As we’ll see below, these organizations are leading the way by nurturing change efforts and managing performance in a way that is more consistent with how nature works.

The Pitfalls of Quantitative Measurement

In the business world, we often hear statements like “People pay attention to what you measure.” and “This is our target, here’s how we’ll know we’re getting there.”

One way that managers try to institute change is by focusing on particular measurable goals — “We have to build 100 more units a week.” These quantitative targets then become the primary driver of change. Managers often attempt to control profits by measuring — and then controlling — costs.

But, interestingly, Toyota, the most successful automobile company in the world, has no standardized cost-control system used for centralized control. Toyota measures many things. They fully comply with regulations in the many countries in which they operate. But they do not use their cost measurements in ways that most other large corporations do. They measure for learning rather than controlling, for helping local people see how they are doing, and for continuous improvement, not for centralized control.

In their now-famous book, Relevance Lost, Tom Johnson and Robert Kaplan argued that cost accounting in business had been a primary reason for the deterioration of the American manufacturing base. Many companies were mistakenly deemed unprofitable because, using traditional cost-accounting methods, they misallocated overhead costs. As Johnson explains in a forthcoming book, written with Anders Bröms, Profit Without Measure, this example underscores the inherent difficulty in assessing the health of a complex system based on isolated measurements.

Still, people in business believe that measurement is important because it is the “hard stuff,” the stuff that really counts. Learning, mental models, and so on are interesting and sometimes useful, but the hard, numerical results are what count. However, if you look at how so-called hard results are actually gathered and how the measures are defined, you will find that they are not derived from the laws of physics. These statistics and assessments are highly subjective, human inventions, often that very few people really understand.

Dr. Deming, who was a statistician, said that 97 percent of what matters cannot be measured. Unfortunately, management often seems to focus 97 percent of their attention on measurables, which means that we are spending most of our time on things that don’t matter. In discussions with front-line managers, the subjectivity and inadequacy of measures becomes clear. You just ask people simple questions like, “How do you know a great team? What makes it successful?” People always say similar things — energy, vision, imagination, and excitement. But how can you measure any of those things? Nevertheless, we somehow regard the work of management as driving change and managing by what we can measure.

If you look at how so-called hard results are actually gathered and how the measures are defined, you will find that they are not derived from the laws of physics. These statistics and assessments are highly subjective, human inventions.

“Nature Does Not Measure”

This focus on measurement started with the development of the Western scientific method — the belief that you need to measure separate aspects of a phenomenon in order to understand it. Galileo achieved the conceptual breakthrough — later elaborated by Descartes and Newton — that you can measure the speed or motion of an object separate from everything else about it. This finding had an extraordinary impact on the growth of Western science and eventually on our ideas about individuals and organizations — sometimes with unintended and undesirable consequences.

This penchant for quantifiable measures formed the foundation of the Industrial Revolution and the Machine Age. But the problem with the mechanistic view is that nature does not measure. Nowhere in nature will you find 98.6; that figure is a human abstraction. Knowing that your temperature is measured as 98.6 degrees Fahrenheit isn’t useless, but it is a fragmented piece of information abstracted from an intricate web of connections and interrelationships.

Although precise measurements do not exist in nature, patterns do. Much of our perceptual apparatus is designed to give us the ability to perceive ratios — greater than and less than — not abstract numbers. These ratios make up the essence of all pattern information. What nature does do is provide us with the ability to recognize increasingly complex patterns. A lot of what we call intelligence is based on this capacity.

For the past five years, Tom Johnson has been studying Toyota and the Swedish company Scania, one of the world’s biggest manufacturers of large trucks. For example, he has been investigating Scania’s approach to product development. Over 30 years, they have developed a modularized approach to product design — working toward manufacturing all of their products from fewer and fewer different parts. They are continually expanding their product variety, while reducing the total number of parts they use. They claim they can now virtually custom-design a truck for any customer out of a relatively small set of standardized parts.

Scania measures many things that no other automotive manufacturer measures. For instance, they keep track of the total number of different parts used in all of their products. By reducing the diversity of parts they use, they spend significantly less on manufacturing than do their competitors. Scania engineers have developed a philosophy of measurement based on a vast array of ratio scales, rather than absolute quantities — if they use fewer parts per car, they reduce their costs. It’s very intuitive, subtle, complex, and non-quantitative in the way we normally use the word quantitative. I would also argue that Scania’s approach represents a model for the future of business. By generating ever greater variety from a small set of omni-potential building blocks, Scania’s approach to product development and design matches how nature operates, just as do new ideas in governance.

New Trends in Governance

Some companies are beginning to find that the concentration of power in the hands of a few may not be the best way to release creativity and maximize the generation of wealth. VISA International, one of the largest companies in the world in terms of market value, has a governance system that departs radically from the traditional hierarchical concentration of power. This organization is designed around one core driving premise — to distribute power and authority in order to release innovation and constant adaptability. VISA doesn’t look like our stereotypical model of a company — it’s a network of several thousand member organizations governed by elected boards whose powers are clearly specified in a written constitution. It has only 3,000 employees and is incorporated as a non-stock, member-owned for-profit business in the state of Delaware. Were it traded in public capital markets, its market value would exceed General Electric’s by a factor of two and Microsoft’s by a factor of six.

Shell Oil (the U. S. Shell operating company) represents another example of this trend. Up until several years ago, Shell was a classic authoritarian, hierarchical corporation based on traditional forms of governance. Like many great Industrial-Age companies, such as IBM, Eastman Kodak, and General Motors, Shell was extraordinarily successful. These organizations were benevolent and, by and large, paternalistic, concentrating power for the good of their people. They didn’t just provide an honest day’s pay for an honest day’s work; lifetime employment was virtually guaranteed. Until, in the early 1990s, Shell experienced the worst financial crisis in its history.

Today, Shell Oil has only about 6,000 employees — not primarily because of downsizing, but because the company created a fundamentally different governance system. The business is now a network of enterprises. Many of the changes that began in the U. S. are starting to spread worldwide through the Royal Dutch Shell group. Although Shell had no formal contact with VISA during its transition, the structure of these two organizations has striking similarities.

The core idea of what is happening at VISA and at Shell is one that we teach our kids in school and then promptly ignore in our institutions — the essence of all democratic theories of governance is that power flows from ideas, not from people. And when a human community takes the stand of genuine conviction around certain core principles, those principles then become the basis for how it governs itself. The founders of VISA took two years to articulate an eleven-word statement of purpose: “to create the world’s premier system for the exchange of value.” The purpose, along with a broader set of principles, then became the basis for VISA’s constitution and articles of incorporation. Shell did something similar. They articulated a set of core premises that they believed in deeply. They then created autonomous, free-standing profit centers out of their downstream operations, their upstream operations, their chemical operations, and even their internal services. These businesses have their own internal boards, so they are truly autonomous, virtually free from interference by the corporate center. Before the recent decline in oil prices, Shell had gone from a little over a million dollars in profit to over a billion dollars in profit in four years, with a tremendous release of entrepreneurial energy.

When a human community takes the stand of genuine conviction around certain core principles, those principles then become the basis for how it governs itself.

I am not saying that hierarchy is disappearing — hierarchy is an organizing principle in nature. VISA and Shell have hierarchies. But their hierarchies do not concentrate power in the center in the same way the old Industrial-Age hierarchies did.

Rethinking Strategy: Beyond the “Bottleneck”

One main undercurrent of change in strategy is closely related to that occurring in governance. The power to set strategy has been one of the keys to our authoritarian hierarchical organizations. Top management traditionally sets strategy. But we’ve seen an increasing number of counterexamples. The idea for Intel to expand from memory chips to microprocessors came from middle management, not from the top. Canon, the photo company, got into photocopiers because their salespeople kept trying to repair the copiers in the photo shops they were calling on. They felt that Canon had the technology to make a much better product. The stories go on and on and on.

As strategy theorist Gary Hamel puts it, “The bottleneck is at the top of the bottle”; that is, managers in traditional command-and-control structures often stand in the way of innovation and fundamental shifts in strategy. His view is that the key to strategic inventiveness and adaptability of all enterprises today is to harness the best thinking of people throughout the organization.

The key to strategy that energizes and focuses an entire enterprise without constraining imagination lies in a deep sense of purposefulness. Ray Anderson, CEO of Interface, the world’s largest manufacturer of industrial carpeting, says, “I have asked my people to join with me in inventing the next Industrial Revolution because the first Industrial Revolution is not sustainable.” Anderson points out that the way that our present production systems operate, 97 percent of their material output ultimately ends up as waste. For this reason, he and his colleagues at Interface are pursuing a dramatic business vision: to never sell another carpet. Their aim is 100 percent recycling, to rent carpets that they will eventually take back, break down (to the molecular level if needed), and remake into new carpets.

The most pernicious idea that has permeated management in the past 50 years is that the purpose of a business is to maximize shareholder investment (rather than that being a key consequence of a healthy business). People in many companies are starting to realize that pursuing a “noble purpose” is not just idealistic but pragmatic as well.

Leadership and Change

Fomenting these kinds of changes in measurement, governance, and strategy obviously requires leadership. However, we do not have a collectively recognized definition of leadership. In most corporations, when people talk about the leaders, they are referring to top management. But if leadership means top management, then the term itself is superfluous — it has no independent meaning. What if we considered leadership to be the capacity of a human community to create a new future? What if we saw leadership as inevitably connected to bringing forth a new reality and creating new possibilities? From that perspective, leadership doesn’t have to do with hierarchies or distribution of decision-making authority. Instead, if a human community is reasonably successful at creating its future and influencing its destiny, then it has good leadership. And if it isn’t, it doesn’t.

We often hear the expression, “What we need around here are leaders who will drive change.” Again, the idea of “driving change” reflects the machine metaphor. We think the people at the top will make this machine — our organization — change. But machines can only change when somebody from the outside causes them to change — they cannot change themselves. Most of our efforts to bring about change in organizations come from the outside — in new organizational structures, new designs, new bosses, new initiatives. We rearrange, we reorganize, we merge, we acquire. All of these different strategies for change are based on the premise that, if we arrange things differently, then things will get better.

But how do things grow in nature — do we drive them to grow? Do we say, “You must grow five inches a quarter or you’re out of here!” No, gardeners succeed by attending to the host of conditions that could prevent growth from occurring. They ensure that the seeds have adequate nutrients in the soil, ample water, a suitable temperature, and, once the plant starts to poke above the surface, sunlight and space to spread its leaves. We all know how to support growth, and yet we typically operate in exactly the opposite ways in our organizations. We try to force growth instead of creating the conditions for genuine growth and change. This is not a passive process — if anything, it takes more work than commanding people to change, because we must acknowledge that, as human communities, organizations, businesses, schools, and hospitals create themselves.

People in many companies are starting to realize that pursuing a “noble purpose” is not just idealistic but pragmatic as well.

If we understood two aspects about how growth occurs in nature, we would never again try to drive our organizations to change. First, the seed and its medium together must have the potential to produce the sort of reinforcing processes that lead to growth. Those first little feelers come out from the seed and start to suck up water and nutrients, and then they extend further, suck in more water and nutrients, and so on. Nothing starts full size, and nothing matures in three steps. Nevertheless, in business, when we seek to expand or make major changes, we do pilots. We begin with one or two pilots, then we roll out the initiative to 180 facilities. Nature would do one or two pilots, which would lead to four pilots, which would then maybe lead to eight, then 16, and so on. Nature generates exponential growth. So, the next time you worry that change efforts in your organization don’t seem to be going fast enough, remember that all growth in nature starts small.

Second, we need to understand the forces that keep our organizations from growing. Ninety percent of effective leadership is attending to the things that could prevent growth, such as fear, which stifles creativity, imagination, and commitment. Distrust stifles openness. How do we address and overcome fear and distrust? Systems of governance that concentrate power in the hands of a few and frustrate, discourage, and demoralize everyone else limit growth. Quantitative measurements that divert people’s attention and lead to endless efforts to “make the numbers” stifle growth. To really learn and grow, we need to figure out how nature works and follow its lead.

Revolution

How is any of this going to happen? Such fundamental shifts as described above seem daunting, even overwhelming. But this perspective again reflects our machine-age thinking. Such changes are daunting if we think that someone has to figure them out and manage them. Ironically, the Industrial Revolution, which gave us the machine metaphor, illustrates a very different process at work in large-scale change.

Arguably the most significant change in human affairs of the last several hundred years, the Industrial Revolution wasn’t planned or coordinated. It wasn’t orchestrated by a central planning office, based on a grand strategy. This kind of profound revolution seems to organize around a few key ideas, not a carefully designed scheme. The Industrial Revolution unfolded as an emergent phenomenon. But it was not random. Gradually, it became more and more coherent. It was “organized,” so to speak, by a guiding image — the image of the machine.

What might be the guiding image for “the next Industrial Revolution,” as Ray Anderson calls it? Perhaps it will be the image of nature, of the natural system. Perhaps it will be the picture of earth, the natural system that is our home.

If our way of living is not sustainable, then we are going to have to change some things. But although we may acknowledge this need to alter the way we live, we often claim that the change can’t be achieved. This is a profound paradox: We recognize that human society can’t function for long based on principles that aren’t consistent with how nature works, but at the same time hold that it’s not possible for us to change to become more in line with nature.

Most of us cannot conceive of our organizations being structured any other way. We still run our economy based on maximizing the output per labor, not output per natural resource, even though we’re experiencing increasing environmental constraints and rising unemployment worldwide, social inequity, and injustice.

Creating more sustainable organizations means accepting that the way we organize our society is a human invention; it’s not based on the laws of physics, but rather on a set of habits. Once we acknowledge this reality, we can begin to create deep, meaningful changes in the way we do business.

Suggested Further Reading

de Geus, A., The Living Company. Harvard Business School Press, 1997.

Hamel, G. and C. K. Prahalad, Competing for the Future: Breakthrough Strategy for Seizing Control of Industry and Creating Markets of Tomorrow. Harvard Business School Press, 1994.

Johnson, H. T. and R. S. Kaplan, Relevance Lost: The Rise and Fall of Management Accounting. Harvard Business School Press, 1987.

Johnson, H. T., Reflections of a Recovering Management Accountant. Society for Organizational Learning Web Site (www.solonline.org), January 1998.

Quinn, Daniel, Ishmael. Bantam Books, 1992.

Peter M. Senge is a senior lecturer at the Massachusetts Institute of Technology, where he is part of the Organizational Learning and Change group. He is also Chairperson of the Society for Organizational Learning (SoL), a global community of corporations, researchers, and consultants dedicated to the “interdependent development of people and their institutions.” He is the author of the widely acclaimed book, The Fifth Discipline: The Art and Practice of the Learning Organization.

Editorial support for this article was provided by Janice Molloy.

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Defining the Skill

Although it is one of the most powerful thinking skills, Operational Thinking also appears to be one of the most difficult to master. The difficulty arises because the alternative thinking paradigm — Factors Thinking — is so deeply ingrained in most individuals. People using Factors Thinking ask “What factors influence . . . ?” or “What critical success factors drive . . . ?” In contrast, those exercising Operational Thinking look at the world in terms of how things really work. The difference here is between thinking correlationally and thinking causally. Consider the following illustrations.

One of the most popular books in recent times is Steven Covey’s, The Seven Habits of Highly Effective People. Covey lists seven “habits” that he claims characterize how highly effective people operate. He treats each habit as a separate and independent behavior to be learned. However, if you examine the habits from an “operational” perspective, you will discover that, far from being a “list” of independent behaviors, they reflect an interdependent web of relationships that govern how people should allocate their time in order to develop and sustain effectiveness.

The seemingly simple question, “How do you learn?” provides a second illustration of the distinction between the two kinds of thinking. People inevitably hear this question as “What influences your learning?” They usually respond with a list of factors that bear upon the rate at which they learn. Typical lists include motivation, teacher quality, IQ, parental involvement, quality of teaching materials, and so on. But these inventories do not describe how anyone learns anything!

The figure “An Operational Representation of How Learning Occurs” seeks to portray the process by which people actually learn. As shown, the activity basis for learning is an ongoing stream of life experiences. These experiences include such things as reading, doing, listening, conversing, and reflecting. People “take away” a certain amount of knowledge from each experience. The product of experiences and knowledge per experience defines the rate at which a person learns.

The Benefits

Thinking operationally has two principal benefits. First, it supports more effective communication. Second, it enables you to identify leverage points for improving performance.

Words are notoriously imprecise. This imprecision in turn limits our effectiveness in communicating what we really mean. Because it encourages “describing it like it is,” Operational Thinking imposes a substantially higher degree of precision in the use of words and thereby reduces the likelihood of misinterpretation.

To illustrate how thinking operationally can help in identifying leverage points, let’s return to the cows. After the dawning of my operational awareness, I realized that although the “variable to be forecasted is a function of . . .” approach may work well for predicting the future (if the historical correlations persist), it does little to surface levers for creating the future. So, if you want to increase milk production, you need to examine how milk is actually produced. Doing so yields “number of cows” and “milk per cow per year.” As a first lever for increasing U. S. milk production, you could grow the number of cows by either stimulating cow births or importing cows from outside the U. S. If you went either route, you would have to endure the associated delays (gestation in one case and logistical details in the other).

As a second lever to increase milk production, you could slow the rate at which cows exit the milk-producing stock — that is, increase the average length of time that cows remain productive. The third lever, looking at milk per cow per year, also raises operational issues, such as farmers’ ability to acquire automated milking technology and the speed with which they can assimilate new animal husbandry practices.

This example illustrates the shift in perspective that operational thinking brings about. Viewing milk production as “driven by . . .” external factors such as GNP is tantamount to assuming that it’s something that “happens to you.” Seeing milk as the product of cows causes you to focus on the actual levers that you can exercise to bring about change. Operational Thinking puts you in control of the leverage points for improving performance.

Honing the Skill

The first step in honing your Operational Thinking skills is to become more aware of when you are not thinking operationally. When you find yourself or your organization making a list of “critical factors” or “drivers” to explain a particular event or trend, complete that process. Then call a time out and ask, “What really causes this phenomenon? How does it actually work?” You’ll be surprised at how often the answer is as obvious as “cows” or “I learn through experience.”

In thinking operationally about how something works, look for two categories of “production functions.” The first is stock-generated (like the stock of cows that generates milk production). The second is flow-generated (like the stream of experiences that generates learning). Think hard about which kind of production function best characterizes the activity or process you are examining. Doing so will force you to think in operational terms about what’s really going on in the activity under examination.

An Example

One of today’s hottest management approaches, benchmarking, provides a conspicuous example of correlation-based Factors Thinking. In benchmarking, organizations measure a variety of their operating ratios against “best-in-class” ratios to determine where they stand and what they need to improve. The problem with this approach is that operating ratios are not operational descriptions of how a business works but rather statistical calculations that correlate with performance.

For example, a senior VP of a well-known technology company was puzzled by the fact that his organization’s human resources department didn’t “fit the model” — meaning that the ratio of HR professionals to total head count was significantly higher than “best in class.” Even more puzzling, HR consistently complained that they were terribly overworked!

Constructing a simple, operational model of demand for HR services shed significant light on the mystery. The model clearly showed that demand for HR services — for any given level of staffing — could be vastly different depending on the rate at which the number of employees was changing. As the figure “The Problem with Benchmarking” illustrates, a firm experiencing rapid growth in head count (such as this VP’s company) should expect far greater demands for HR services than an identically sized firm with stable levels of staffing. In this light, benchmarking an organization against a single, best-in-class standard can be very misleading.

Summary

Although the benefits of Operational Thinking are clear, implementing the skill poses a serious challenge for most adults. The reason for this difficulty is that correlationally based Factors Thinking is deeply ingrained in most of us. But honing your Operational Thinking skills will pay big dividends in terms of your ability to communicate effectively and identify levers for change.

Barry Richmond was the managing director and founder of High Performance Systems, Inc. He received a PhD in system dynamics from the MIT Sloan School of Management, an MS from Case Western Reserve, and an MBA from Columbia University.

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A learning laboratory consists of three key components. A dynamic simulation model captures the model designer’s understanding of the business system, including its structure, the marketplace, and the competitive environment. A user interface presents simulation results year-by-year, allowing users to make new decisions that are then fed back into the simulation. Finally, an experiential workshop gives participants an opportunity to play the simulation and then debrief the results. The learning laboratory provides a means for participants to experience and learn about important issues without endangering the actual organization.

Design Trade-offs

Many decisions must be made in creating a learning lab. These decisions include both big ones (what type of issues the simulation should address) and small ones (what type of computer equipment to use). Three critical factors that drive many of these design choices are the levels of detail complexity, dynamic complexity, and simulator interface sophistication included in the learning lab. These can be summarized on a three-dimensional axis (see “Learning Lab Design Trade-offs”).

A high degree of detail complexity is characterized by a large amount of detailed information about the business system. High detail complexity ratchets up the challenge of developing the learning lab because it increases the time spent on design, development, data collection, and testing. Pressure from clients to include large amounts of detail can also complicate matters. (Many clients erroneously assume that more detail automatically leads to more realism, and that more realism leads to more learning.)

A simulation or learning lab with high dynamic complexity contains a model with a robust underlying structure that captures feedback and time delays present in the system. A wide range of possible behaviours may emerge from such a simulation. Consequently, designing a workshop that lets participants experience and learn about those many behaviors becomes an important consideration in the decision to incorporate high levels of dynamic complexity into the simulation.

The level of interface sophistication involves the aspect of the simulation that is visible to the user. It includes the type and manner of user input, as well as the presentation of simulation results. Increased sophistication in the interface (for example,the inclusion of on-line help, multimedia,or other technological features) can enhance ease of use and make the simulator more appealing. Note, however, that an overly sophisticated interface can significantly add to the cost of the simulation, and may overwhelm users or distract them from learning if the interface resembles a video game too closely. A simulator with a compelling story and a select number of interesting dynamics engages participants just as powerfully as an elaborate multimedia simulator interface.

As we discuss below, the various trade-offs among design issues produce different experiences for participants. Deliberate consideration of these trade-offs in light of the learning goals is key to successfully meeting those goals.

Focus on Operational Learning

OPERATIONAL LEARNING MODEL

Some simulators may be designed to teach users how to maximize operational effectiveness (see “Operational Learning Model”on p. 7). Examples of issues addressed in this kind of simulation might include controlling production flows in a plant, managing an R&D pipeline in a consumer goods company, or making French fries in a fast food restaurant. Typically, such a simulator will have a high amount of detail complexity and a high degree of interface sophistication. Users see a realistic representation of the business unit and receive immediate feedback on the effectiveness of their decisions. The experience is highly engaging, at least at first. However, the simulator rarely includes time delays, accumulations, or other dynamic subtleties to sustain ongoing interest. Users learn a significant amount about operating the business activity but little about the systemic, long-term factors that underlie the business.

Stress the Dynamics

CLASSIC MODEL

Traditional system dynamics models examine the often-misunderstood long-term dynamics of business and social systems(see “Classic Model”). Classic models,such as those that focus on the behaviors of industries, cities, and worldwide population growth, were designed as high-level,generic representations of the issues.

Such models take into account powerful long-term trends and fundamental changes,and can produce important insights.Unfortunately, the high level of abstraction and the lack of an easy-to-use interface can make these simulations difficult to understand by those not directly involved in their creation.

Mask the System

GAMING SIMULATION MODEL

In the last few years, commercial vendors have produced a number of sophisticated gaming simulations, of which SimCity by Maxis is probably the most popular (see “Gaming Simulation Model”). These simulations are costly to develop, because they contain extensive multimedia interfaces and a high level of detail. Often a sophisticated, highly dynamic model supports the simulation. However, users sometimes have difficulty handling the bewildering array of information on the screens and the enormous number of decisions they must make in using these products. The learning from these simulations is operational rather than systemic and often lacks focus.

Ideal for Systemic Learning

SYSTEMIC LEARNING MODEL

A simulator intended to help users learn about a business system includes a balance of the three design drivers (see “Systemic Learning Model”). Such a simulator contains just enough detail to make the simulation tangible to users. The interface is just sophisticated enough to make the experience easy, interesting, and fun. This simulator also features a high degree of dynamic complexity in the underlying model, to provide rich, subtle responses to user decisions. It is this dynamic complexity that promotes systemic learning, and that provokes exclamations of “Ah-ha!” as users encounter unexpected but subsequently explainable results.

Creating a Successful Learning Experience

A final note: To create a successful learning laboratory, designers must help participants shift their mental models from focusing on winning to focusing on learning. A learning laboratory should provide a means for participants to design strategies, assess outcomes, and discuss ideas with other players. This format includes encouraging “far-out” approaches that test the limits of the situation and create an exciting atmosphere where players want to take risks and make mistakes in order to truly learn. In short, a learning laboratory should help participants really perform on a management practice field, not just play a simulation game.

William Glass-Husain is a senior consultant with the Simulator Solutions Group of the Powersim Corporation. David W. Packer is a founding member of the Systems Thinking Collaborative, a network of consulting capability in systems thinking and system dynamics.

This article stems from work done by the authors at GKA Incorporated and elsewhere on multiuser learning laboratories.

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As the quote above illustrates, in today’s fast-paced business world, we seldom have the appropriate time perspective when investing in the acquisition of new skills. We tend to want things to be available in bite-sized chunks that we can conveniently fit into our busy schedules, and we want to see immediate results from those investments. Sending people to short skill-building workshops may be adequate for adding to a base of knowledge they already possess, such as training on a new machine or with a new accounting software package. If, on the other hand, we are interested in developing capabilities that are quite different from our current base of experience and skill, this approach is likely to produce disappointing results.

THREE-LEGGED STOOL

The stool represents the interdependence of three core capabilities to support organizational learning: Aspiration, Generative Conversation, and Understanding Complexity. Together, these three capabilities allow us to create our future.

Developing Organizational Learning Capabilities

For many organizations, developing the capabilities to support organizational learning requires the acquisition of markedly different skills from those they are currently using. In the absence of a solid understanding of what it really takes to develop such skills, many organizations fall into the trap described in the opening quote and abandon their efforts prematurely. The challenge multiplies when the skills involved function as an ensemble whose interdependent development is more important than the development of each one separately.

In The Fifth Discipline, Peter Senge defines learning organizations as those that continually enhance their capacity to create the results they truly care about. In our work at the Society for Organizational Learning (formerly the MIT Organizational Learning Center), we often talk about investing in three core capabilities to support organizational learning. We use the analogy of a three-legged stool to represent the interdependence of those three capabilities (see “Three-Legged Stool”).

The Aspiration leg of the stool focuses on developing a clear sense of purpose and vision both at an individual and at the larger organizational levels (disciplines of Personal Mastery and Shared Vision). The Generative Conversation leg centers on expanding our capacity to be more reflective in our thinking and to become more generative when we think and talk with others (disciplines of Mental Models and Team Learning). Understanding Complexity emphasizes internalizing perspectives and skills, which allows us to better understand and manage systemic interconnections that produce complex organizational dynamics (discipline of Systems Thinking). Together, these three capabilities allow us to create our future. They enable us to articulate clear visions of what results we want; they give us the capacity to have productive conversations about how to make those results happen; and they provide us with the conceptual tools and thinking to manage the complexities involved.

The image of the stool conveys a couple of important points. First, the stool must have all three legs to be stable enough to support anything, especially the capacity to create your own future. Second, if you do not develop these capabilities more or less together as an ensemble, the stool will have legs of different lengths and will be too wobbly to support anything for very long. So, even though you might experience momentary success in creating your own future, it will be short-lived if you do not balance the development of the three core capabilities.

A relevant question at this point might be, “How do we know the length of each leg at any point in time?” In other words, what kind of a common measurement can we use to gauge how we are doing over time, across a diverse set of capabilities? To answer these questions, we need a framework for talking together about what it means to develop each of these capabilities.

A Five-Stage Model of Skill Acquisition

Dreyfus and Dreyfus, in their book Mind Over Machines, offer a five-stage model of skill acquisition that provides a useful starting point in answering the questions posed above. They start by making a distinction between “knowing that” (knowing that certain rules and principles apply in a given situation) versus “knowing how” (being able to actually use the particular skill). These two kinds of knowledge are not equal, and having one doesn’t necessarily mean you have the other.

For example, although you obviously possess an expert’s know-how about walking, you probably can’t translate that capability into rules and procedures that would allow someone else to replicate the skill. In other words, you possess the “know-how” for walking but you don’t necessarily “know that” certain principles and movements allow you to produce that action; you just do it. In other situations where you might be a novice, like downhill skiing, you may clearly understand that you are supposed to keep your skis parallel, lean forward, and allow your legs to work like shock absorbers, but you may not be able to convert that knowledge into know-how that lets you ski gracefully down the slopes. As you struggle to keep your skis from crossing and end up tumbling down the slope, you are demonstrating the gap between “knowing that” and “knowing how.”

Based on extensive studies, Dreyfus and Dreyfus conclude that people generally go through five distinct stages from rule-guided “knowing that” to experienced-based “knowing how.” These stages are: Novice, Advanced Beginner, Competent, Proficient, and Expert. Each stage reflects different levels of competence in a number of specific capabilities, such as overall perception of a task situation and ability to exercise judgment (see “Five Stages of Skill Acquisition” on p. 3).

Novice. At this stage, learners have a beginning awareness of the existence of a particular subject area, but only at the level of abstract concepts and ideas. The instructor must clearly and objectively define elements of the situation to be treated so the novice can recognize them without reference to the overall situation in which they occur. Novices possess little or no ability to put ideas into practice in a reliable way. They apply their nascent skills by following a set of rules without regard for the context in which they are operating.

Advanced Beginner. Performance improves to a marginally acceptable level only after novices have considerable experience coping in real settings. Through repeated exposure to many situations, advanced beginners gain a deeper appreciation of the subject area and acknowledge their own lack of knowledge about the discipline as a whole. At the same time, they learn to apply principles and tools in contexts that are similar to well-defined cases they have studied. That is, advanced beginners can reliably follow the prescribed steps of a process, provided the situation closely matches ones they have previously encountered.

Competent. Achieving competence means having had exposure to, and a working familiarity with, the full array of knowledge that comprises the particular subject. At this stage, learners have received all the “knowing that” there is to know—additional instructions and tips will not make them any more competent. They have begun to internalize the new skills and capabilities by developing the ability to go beyond simply applying rule-bound procedures in highly structured settings. Competent individuals apply tools and principles in a broad range of circumstances, adapting their practices to the specific situation through careful study of the context and selection among viable alternatives.

Proficient. Proficiency comes neither from more book learning nor from instructional sessions but from direct experience gained by continual practice in diverse settings. Proficient performers have internalized all the tools and concepts of the field and can reliably apply the tools and principles to any task or situation in a highly flexible and fluid manner. They intuitively grasp the whole of a situation without decomposing it into component features (through a process known as “holistic discrimination and association”) and apply the appropriate set of skills. However, they still act based on a conscious decision-making process.

Expert. Experts generally know what to do based on mature and practiced understanding. They have fully internalized perception and action in their specific domain and do both intuitively, without conscious thought. An expert skier, for example, doesn’t consciously study the terrain and strategize about the best path to follow or form to use—she just skis down the hill, making adjustments as needed. When things are proceeding normally, experts don’t solve problems or make decisions; they just do what usually works. Experts often develop through mentoring relationships and apprenticeships, where they learn by absorbing new capabilities through continued exposure, observation, and interaction with an expert. Learning at this stage is often rooted in conversations and direct interaction with other experts. Doctoral programs for researchers and internships and residencies for medical doctors are examples of such institutionalized apprenticeships.

Five-Stage View of Systems Thinking

We can start to answer the questions we asked at the outset by walking through the five stages in the context of the core capabilities we saw in the three-legged stool diagram. In particular, we’ll apply the model to the discipline of Systems Thinking to get a sense of the kinds of progressive steps an individual would need to take on the road to becoming an expert systems thinker.

Novice Systems Thinkers have a basic literacy in the tool of causal loop diagrams (CLDs). They know the rules for assigning either an “s” (causing a change in the same direction) or an “o” (causing a change in the opposite direction) to each link and can tell the difference between reinforcing and balancing loops. They can read simple diagrams created by others, but cannot yet construct a diagram on their own. Novice systems thinkers also know about systems archetypes and can describe what each archetype structure looks like as well as its corresponding pattern of behavior over time.

Advanced Beginner Systems Thinkers have mastered the basic mechanics of using links (s’s and o’s) and loops (reinforcing and balancing) and can map out simple loop structures. They use the systems archetypes as “templates” to recognize similar structures and dynamics playing out in their own settings. Advanced beginners also understand the basic lessons of systems principles (generalized observations about how complex systems behave, such as worse before better, unintended sideeffects, and policy resistance). In addition, they can identify cases where systems principles prevail and anticipate when a systems principle applies to a specific situation. They are familiar with some basic stock and flow structures, such as the aging chain, co-flows, and anchoring-andadjustment, and can identify similar structures in their own settings.

FIVE STAGES OF SKILL ACQUISITION

Competent Systems Thinkers have mastered the art of developing CLDs on topics they are familiar with and can map as many loops as necessary. They have fully internalized the systems archetypes and use them to understand complex dynamics in diverse settings. They also intuit when systems principles are relevant to a situation and think through the process of identifying the structures that are operating. Competent systems thinkers represent structures equally well in both CLDs and stocks and flows. They can convert those pen-andpaper conceptual models into computer simulation models and possess a solid working knowledge of basic computer modeling tools and skills. Because they themselves are so consciously aware of the tools and skills they are learning, individuals at the competent stage are also capable of teaching others how to draw CLDs, use systems archetypes, identify systems principles, and develop basic stock and flow structures to the level of an advanced beginner.

Proficient Systems Thinkers view the world in terms of feedback loop structures and archetypal patterns. When they see profits falling, for example, they can’t help but look at the situation in a larger context of other critical variables that affect profits. When they encounter a problem, they immediately sense the systemic implications and explore possible actions using mapping and computer tools to help sort through the multiple possibilities. In addition to mastering all the skills found at the competent level, proficient systems thinkers can consult to others and tackle issues in any setting. They intuitively grasp the important systemic structures in a situation and then select the appropriate actions to take. Being a highly seasoned and capable systems thinking consultant means one has reached at least the proficient stage.

Expert Systems Thinkers have elevated all the skills and knowledge from the previous stages to the intuitive level. They use systems thinking as a natural part of the creative process; the concepts and tools are an inseparable part of how they think and act. Experts do not consciously use a systems thinking tool or try to think in a particularly systemic way; they simply do what normally works, which happens to be systemic in its approach.

The table called “Five-Stage View of Becoming a Systems Thinker” contains a summary of the stages for developing systems thinking skills and estimates of how much training and practice time are required to advance from stage to stage. The Novice and Advanced Beginner levels are based on the content delivered in most two- to five-day workshops currently offered by various organizations. The Proficient and Expert stages fall into the range of time required to earn a doctorate in the field of system dynamics. What is noteworthy about these time estimates is that there are virtually no public programs yet available to systematically elevate a person to the Competent stage. Hence there is no reliable way to build a level of competence within organizations, short of sending someone to a master’s or PhD program.

FIVE - STAGE VIEW OF BECOMING A SYSTEMS THINKER

The times are specific to each stage and are in addition to the times indicated in the previous stages. Also, the time frames shown are estimates that are meant to provide an order of magnitude reading rather than precise numbers for planning purposes. Many factors make the time frames longer or shorter for any specific individual.

The Case for Building Competence

The situation of developing organizational learning capabilities in most organizations is represented in “Outside Expertise vs. Internal Capability” by the two solid arrows at the top of the diagram. That is, companies invest in developing skills by using outside outside expertise to get people to a Novice or maybe an Advanced Beginner level. When those novices and advanced beginners fail to produce significant results through application of their new skills, many companies abandon the effort. But, if we hope to gain from the benefits of acquiring new organizational learning skills as an organization, we must be able to get a critical mass of people to at least the Competent level.

We are right back to the dilemma of learning calculus posed at the beginning of this article. Many organizations, for example, have dabbled in acquiring systems thinking skills and have sent people off to attend two- to five-day workshops. Most of these learners reach only a Novice level of capability, which does not produce many visible results. Sending them to additional workshops that are not coherently designed to build competence usually doesn’t do much to develop their capabilities beyond an Advanced Beginner level. And, without a framework for assessing what level of skill a learner has reached, managers may think that they have invested more than enough resources in developing knowledge of the discipline and conclude that something is wrong with the discipline itself.

The challenge for many organizations is sustaining a level of commitment over time to developing a certain level of internal capability and skill. One way of achieving this goal is to be more strategic in the use of outside expertise to help build internal competence in a systematic and measurable way (dotted arrow in “Outside Expertise vs. Internal Capability”). Once a core group of people has reached the Competent level, they can then apply what they know to produce better results for the organization and contribute toward developing others’ capabilities. This way of internalizing and leveraging knowledge thereby creates an internally driven self-reinforcing engine of growth (the lower arrows in the diagram).

If an organization is serious about developing its ability to create its own future, it must find a way to help a critical mass of employees reach the Competent level in a skill or set of skills. Gaining awareness of the different levels of skill development, consciously formulating a plan to develop internal competence, and leveraging the talents of outside trainers are key ways for organizations to start developing the pillars of organizational learning capabilities on which they can create their futures.

OUTSIDE EXPERTISE VS. INTERNAL CAPABILITY

The solid arrows at the top show that companies invest in outside expertise to get people to a Novice or Advanced Beginner level. The challenge is using outside expertise to help people reach the Competent level (dotted arrow). They can then contribute toward developingothersʼ capabilities (lower arrows).

Daniel H. Kim, PhD, is publisher of The Systems Thinker and a trustee on the governing council of the Society for Organizational Learning. He is a well-regarded author as well as an international public speaker, facilitator, and teacher of systems thinking and organizational learning.

Editorial support for this article was provided by Janice Molloy.

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