Crashing With the Nose Up

JAMES R. CROW

The 5th Annual KM World 2001 Conference and Exposition -- Santa Clara Convention Center,

Santa Clara, California

October 30 - November 1, 2001

Lift

Thrust Drag

Gravity

Introduction Knowledge Management Requires

Very High levels of Trust and Internal Cooperation

The topics we will discuss undermine trust and teamwork within the organization

Trust and teamwork require an understanding of the organization as a system of interdependent components

Topics of Discussion Just as systems can be designed

to promote internal competition they can also be designed to promote internal cooperation and collaboration.

Trust is something that is built over time.

What do the following have in Common?

Profit and Loss OvertimeRejects ReworkCycle Time TurnoverAbsenteeism Accidents

Warranty Costs Cash Flow Market ShareWaste

What do the following have in Common? Pay for Performance Systems Rankings (People, Plants, Shifts) Reward and Recognition Programs Performance Appraisals Contests Quotas Management by Objectives Performance Management Systems

Management, in the belief that these programs drive performance, uses these programs to drive the company forward. What these programs actually do is create winners and losers, are counterproductive to teamwork, destroy trust, create fear, ignore the existence of a system, increase variation in a system and create an adversarial work environment that will make it difficult for any knowledge Management system to be effective.

The organization, driven by management to achieve higher levels of performance, may instead “Crash With the Nose Up.”

The System is a series of interdependent components that try to work together to achieve the aim of the System. W. Edwards Deming

Optimization is a process of orchestrating the efforts of all components toward achievement of the stated aim. Optimization is management’s job.

Sub-optimization is the result of doing things that ignore the existence of a system, and the interdependence of the components.

New Idea

Design Consumer And Research

Suppliers RedesignCustomers

A

B Value Adding Processes MarketsProduction, Assembly, Inspection, Distribution

C Industry

D Technology

The Organization as a System

We are all victim's of What We Know

Closely Held Beliefs

Affect Systems Design

Affects Individual and Group Behavior

Systems Drive Behavior

Performance Appraisal Our Expectations Reward exceptional performers Identify poor performers Determine pay rates Enhance the communication process Career planning Feedback on job performance Build Relationships Create documentation Motivate employees Solve most - if not all of your employee

relations problems.

“The performance appraisal process is a cart that is asked to carry too heavy a load.”

Peter Scholtes

How the Performance Appraisal results in sub-optimization of the system

Acts as a barrier the the communication processReinforces the boss/subordinate relationshipCounterproductive to “driving out fear”Helps to establish an internally competitive systemTakes away from the “focus” on the customerRequires tremendous time and resources to develop and administerIgnores the interdependence of the components within the systemTends to be subjective instead of an objective measure of performance

Measures most recent performancePeople similar to the appraiser tend to receive higher

appraisals

A study done at a large GE plant showed the performance appraisals had no positive impact on the organization.

Work Planning and Review

More frequent discussions of performance

No summary judgments or ratings Salary action discussions held

separately Mutual goal planning and problem-

solving A joint process with shared

responsibilities

One Year StudySignificant improvement in the following

Amount of assistance in improving performance

Degree to which manager was receptive to new ideas

Ability of manager to plan Extent to which manager

made use of employees abilities

Correct career development goals

Increase in number of performance discussions

Pay for Performance

Theory: Good performance should be rewarded, bad performance punished. Money is a motivator. Tying pay to performance is a way to enhance the performance of individuals

Reality: Money is not a motivator. Money is at best a satisfier.

What is outstanding performance?Quarter

Name 1 2 3 4 Total Rank

Ken 8 10 12 9 39 5

Barbara 6 4 11 7 28 1

Lenny 11 11 11 8 41 6

Noboru 8 11 8 11 38 4

Cathy 15 5 12 4 36 2

Steve 5 9 9 10 33 2

Defects per worker for the year

What is outstanding performance

55 Upper Control Limit = 51.79

50

45

40 Average 35.83

35

30

25

20

15 Lower Control Limit = 19.97

10 39 28 41 38 36 33

05 Ken Barbara Lenny Naboru Cathy Steve

Business Week, September 4, 1994 Eleven of thirteen school

districts drop pay for performance plans. This sounded like a good idea but any performance gains were more than off set by charges of unfair treatment and conflict between teachers.

Despite the evident popularity of this practice, the problems with individual merit pay are numerous and well documented. It has been shown to undermine teamwork, encourage employees to focus on the short term, and lead people to link compensation to political skills and ingratiating personalities rather than to performance. Indeed, these are among the reasons why W. Edwards Deming and other quality experts have argued strongly against using such schemes.

Jeffrey Pfeffer, “SIX DANGEROUS MYTHS ABOUT PAY,” Harvard Business Review, May-June 1998

Six Dangerous Myths About Pay

Labor rates and labor costs are the same thing You can lower your labor costs by cutting labor rates Labor costs constitute a significant proportion of total

costs Low labor costs are a potent and sustainable

competitive weapon Individual incentive pay improves performanceMost merit-pay systems share two attributes: they absorb vast

amounts of management time and make everybody unhappy. People work for money

The Role of Money

Money should enable you to hire and retain the workforce you need to run a successful organization.

Reward and Recognition Programs

Theory: People will work harder to receive recognition and be rewarded for their efforts.

Reality: Programs have little if any impact on performance, and create a win/lose working environment.

Reward and Recognition Programs Sub-optimize the system in the following

ways: Costly and time consuming to develop and

administer Always more losers than winners Takes away from customer focus Selection process can cause conflict within the

group Any positive impact on performance is short-

lived.

Contests/Competitions/Rankings/Incentives Theory: Since our economy is based on competition and

we can see the benefits of competition all around us, we will benefit as an organization by making competition the way we do business internally also

Reality: Creates winners and losers, and there will always be more losers than winners

Ignores the existence of a system and the interdependence of the components within the system

Counterproductive to Teamwork, destroys teamwork Takes away from customer focus

“The question, then is, how do you produce internal commitment? One thing for sure is that the incentive programs executives have used - higher compensation, better career paths, employee of the month, recognition awards, simply do not work. On the contrary, in all my years as a change consultant, I have repeatedly witnessed how offering employees the “right” rewards creates dependency rather than empowerment. Inevitably, the power of such methods wears off with use, and all that has been created is more external commitment.”

Chris Argyris, Empowerment: The Emperor’s New Clothes, Harvard Business Review, May-June 1998

Quotas

Theory: To achieve increases in sales, production, quality, etc., we must set quotas. People will strive to achieve these quotas and our sales, productivity, quality will increase. Without a quota no one will sell/ produce anything.

Quotas

Reality: Quotas limit performance and contribute to sub-optimization of the system.

Sales tend to peak at the end of the month, quarter, year

Sales reps tend to limit their sales to the quota or only slightly above.

Sales reps sometimes hold orders as a “cushion”towards next months sales.

Creates winners and losers through competition between sales reps.

Management by Objectives/MBO

Under pressure from management to “hit the numbers” Bausch & Lomb’s executives got creative.

Hong Kong Allegedly inflated revenues by faking sales of Ray-Ban sunglasses to real customers. The glasses were allegedly then sold at cut-rate prices to gray-market dealers

Miami By accepting cash payments and third-party checks, a Miami warehouse may have indirectly helped launder drug money until mid 1990. Senior managers tolerated the lucrative trade, say former executives.

Contact Lenses Contact lens managers shipped products that doctors never ordered and forced distributors to take up to two years of unwanted inventory.

Blind Ambition, Business Week, October 23, 1995

If management by the numbers worked, the former Soviet Union would have been a success.

Commitment Control

Teamwork Competition

Win-Win Win-Lose

Open/Shared Secretive/Closed

Information

Working Together Working for Self

Trusting Suspicious

Trustworthy Untrustworthy

Collaboration Us VS. Them

Can There be too Much Competition

Competition Undermines Cooperation and Trust

Excessive Competition Undermines Quality Decision Making

Too Much Competition Promotes Anti-Social Behaviors

Competition Leads to Under-Investment in Training and Development

Bruce Kaufman, HR Atlanta April 1999

Moving From Competition to Cooperation

Rule One:

Stop doing things that result in sub-optimization of the system. Move from win-lose to win-win.

The objective must always be for the organization to win, not the component parts.

Move From Control to Development

Rule Two: Develop an Understanding of

Deming’s System of Profound Knowledge

The organization as a system Theory of Knowledge Knowledge of variation Psychology

A System of Profound Knowledge

Appreciation for a Knowledge about

System Variation

Theory of Understanding of

Knowledge Psychology

The Organization as a System

The System must have and Aim, without an Aim there is no System

The System must be Managed Management of the System Requires

Knowledge of the Various Components and how they interact

The Secret is cooperation of the components toward the achievement of the stated aim

Must move Thinking from Vertical to Horizontal

Knowledge of Variation

Common Cause (Random) Variation

Knowledge of Variation

Special Cause Variation

Two Mistakes

1. To react to an outcome as if it came from a special cause, when actually it came from a common cause of variation

2. To treat an outcome as if it came from a common cause of variation, when it actually came from a special cause

Theory of Knowledge

Management is Prediction Knowledge is built on Theory The use of data requires

Prediction Need for Operational Definitions Information is not Knowledge

Seven Rules for the Theory of Knowledge

1. Any plan requires prediction

2. There is no knowledge without theory

3. There is no prediction without knowledge

4. Experience teaches nothing without the aid of theory

5. Operational definitions put communicable meanings into a concept

6. A single counter example destroys a theory

7. There is no absolute value to anything

Psychology

Intrinsic Motivation Extrinsic Motivation Overjustification

Motivation

Motivating people

Creating a working environment that enables the intrinsic motivation within people to come out

Motivating Forces in a Work Environment Clearly defined goals Feedback Teamwork Challenge Competition

Dissatisfying Forces in a Work Environment

Not enough time Poor Communications Last minute changes Improper or lack of training Incomplete Information Poor planning Poor working conditions Lack of experienced personnel Defective or inadequate

equipment

The Role of Management

Look at your organization - Do you have dissatisfiers holding you back?

Look for ways to integrate the Motivating forces into your working environment.

Management must spend most of its time developing an understanding of systems and whole systems thinking. This includes an understanding of the interdependence of the components within the system and with larger systems.

Management must move its thinking from individuals to systems and processes. Develop people - manage processes.

The purpose of organizations is to enable common men to do uncommon things.

Management cannot rely on genius. Genius is in short supply and is unreliable.

Peter Drucker