This recession has teeth. While some sectors of the economy have begun to improve, other industries are still struggling. With layoffs and the need to engineer creative and sustainable new strategies, talent has never been more important. Here’s the path forward: finding the right people, employing their talents effectively, while refashioning your workplace so talent and creativity can flourish.
The University of Chicago is known for a culture that celebrates uncertainty - students here are encouraged to believe they don't know everything. That might seem like an odd thing, especially from a celebrated institution of learning. Shouldn't we encourage students to move toward greater and greater confidence in their understanding of the world. Aren't we sharing knowledge with them? Teaching them how things work? No. That's not how we do things.
Mostly, what we aim to teach is how to ask questions about the world. If you get the questions right - if you develop the right analytical tools - you can find your own answers. Chicago students are characterized by their eagerness to explore the world and the ideas they find out there, and their eagerness to engage others in debate. One of the consequences of this appetite for exploration and insight is the opportunity to find inspiration and direction in the most unlikely places.
As I have been thinking about the demands of beginning a new business in this awful economy, I have been reading everything on the topic I can find. One of the best resources I have come across isn't a product of business writing. It wasn't authored by an MBA. It comes from an artist.
Artists can sell their art in a generous market. When everyone is doing well, people buy art because it strikes their fancy. But when the economy collapses, as it recently has, artists find themselves stuck with inventory they can't sell, they search for ideas that can capture the attention of a market that suddenly demands a return on the investment. Buyers are no longer just trying to ornament their lives, they need evidence that their purchase will have transformative benefits. Alan Bamberger, in a very smart essay called Art in the New Economy, makes the argument that buyers will be looking for "Excellence, quality, productivity, dedication, commitment, reputation, pride in workmanship." Unpacking this, he says:
Your art will have to fight for survival. You'll have to conclusively demonstrate why it's worth owning by offering tangible, intangible, theoretical, philosophical and related forms of proof (not the least of which is visual) that it embodies concepts, ideals, inspirations, and aspirations potential buyers can identify with - because convincing people to let go of their money will soon become more daunting than it's been in decades, assuming it hasn't already. Why does your art deserve a place in someone's home or business? How will it enrich or enhance another person's life?
The same is true in business. Contractors and consultants need to prove that what they offer will be transformative and that what they want is the same thing the client wants.
This might seem like a preposterously unlikely moment to go off on your own and begin a consulting business or any other type of new business. But it might also be necessary. And smart. As firms streamline their staff, it might make sense to engineer your exit, rather than waiting to be shown the door. Further, as firms let people go, they will need someone to pick up the work of doing the things these employees once did.
As you go off on your own, or continue to provide services, we encourage you to be open-minded. Develop a hunger for fresh insights. Maybe visit your local museum.
This piece, like our last entry, is written by Gordon Medlock, an instructor at the University of Chicago Graham School, in the program on Human Capital Management. Gordon has a Ph.D. in philosophy from Yale, an M.A. degree in clinical social work from the University of Chicago, School of Social Service Administration, and currently works as a counselor, educator, and talent management consultant. Gordon also facilitates a public dialogue initiative to enable individuals to discuss and influence current political issues.
The Problem
Karl Marx once claimed that the pathology of capitalism was what he called the “fetishism of commodities.” What he meant was that under capitalism, the actual use-value of commodities (goods and services produced to meet our needs) is displaced by the exchange value (money) – with the latter becoming the dominant focus. The danger of distancing ourselves from real use-value is that we fool ourselves into thinking that value creation is about managing and making money, rather than about providing jobs and meeting basic human needs.
The ultimate extension of this pathology is Bernard Madoff’s now infamous Ponzi scheme. Madoff was able to convince thousands of trusted firms, colleagues, friends, and family to part with over $50 billion in a scheme that created absolutely no real value. It was the ultimate in the fetishism of commodities.
It would possibly be comforting to regard Madoff as an anomaly of the system. But unfortunately he is a logical extension of a system that considers the management of money to be the primary driver of wealth creation, rather than the actual production of goods and services. Just as Enron pushed the limits of accepted business and accounting practices to generate the appearance of extraordinary profits, Madoff pushed the limits of unregulated financial markets to give the appearance of extraordinary returns on investment. Neither scheme had anything to do with genuine value creation.
Of course Madoff was only the tip of the iceberg. By now you are probably familiar with how the financial crisis unfolded. You have read about the culture of greed of the eighties and de-regulation of the finance industry in the nineties. You are probably aware – at least to some extent – of the recent history of the subprime mortgage market, Ninja loans (no income, no job, no assets), CDOs (collateralized debt obligations), credit-default swaps, and hedge fund practices that represent the complete dissociation of the world of investment from the value creation process. You may even be familiar with the more distant history of the 14th Amendment after the Civil War, where laws designed to assure political rights for newly freed slaves were used more often to protect corporations – considered to be “persons” under the law – from “threats” of government regulation. But this is not the place or time to examine this important history. The more urgent question facing us is: what is to be done now? Given that we have gotten this far from the genuine purposes of business and investment, what can we do to get us back to fundamental values and sound business practices?
A Modest Proposal
I would like to put forth a modest proposal: that the current financial crisis is a consequence of a basic confusion of means and ends. I propose that we have mistaken the world of investment as an end in-itself, when it was originally conceived as a means for funding commercial enterprises. The true end or purpose of the economic system is the creation of value in the form of quality goods and services, efficiently produced, leveraging human talent and knowledge.
We have fooled ourselves into thinking that the most important activity of the American economy is the activity of Wall Street – as though actual value were created there. In fact, as we have seen, investors are perfectly willing to put the entire economy at risk, in order to maximize their own potential for accumulating private wealth. My proposal is that we as citizens and taxpayers take over the investment and commercial banks that are failing, re-organize them to ensure that they are fulfilling their primary purposes toward citizens and companies, and to pass the legislation required to keep investors focused on their primary purpose – to receive a fair return in exchange for the value they help to create.
I also propose that we structure our system of rewards, penalties and regulations so that organizations that develop new jobs in good times, and retain employees in hard times, are rewarded for their attention to the primary human purposes of enterprise, whereas those that fail to do so pay a penalty tax for each employee laid off. Perhaps more creative alternatives could be found to the lemming-like solution of mass layoffs in tough financial times.
Finally, I propose that government adopt the same principles for generating value that we expect from the private sector. That is to say, government needs to be committed to delivering quality products and services to citizens, to run lean, engage in continuous process improvement, respect and value employees, and focus on high performance and accountability. If government is to be part of the solution and not part of the problem, it needs to be accountable to the citizens that fund and benefit from it.
This should all sound like basic common sense. Indeed, most business analysts recognize that the leading indicators of organizational success are such things as customer and employee satisfaction and retention. Shareholder value and stock price are lagging indicators – highly variable measures of a company’s financial health. They are extremely important to investors trying to turn a profit on fluctuating stock prices. They are not, however, a viable focus for management decisions about the long term profitability of a company. The fetishism of short-term shareholder value obscures the organization’s basic purpose.
The irony is that long term profitability is actually associated with genuine value creation. On this point Marx was decidedly wrong. There is an entire movement of progressive companies, business leaders, managers, and scholars who are making the case for restoring the human side of capitalism. For the past 40 years or more they have been demonstrating that successful organizations are the ones that value and respect their employees, understand the needs and requirements of their customers, create quality products and services that satisfy (and even delight) customers, that engage in continuous improvement initiatives, that run lean, that grow gradually, and that assume a long-term strategic perspective. Organizations such as Toyota, FedEx, and Southwest Airlines are examples that truly walk the talk of human capital management and quality service to customers. They are able to avoid large layoffs, and even adopt no-layoff policies, because their business models include a long-term strategic perspective that anticipates economic downturns as well as periods of prosperity. They don’t just give lip service to the idea that people are our most important asset; they demonstrate that commitment in tough financial times. It is no accident that Toyota has become the leading automobile manufacturer in the world, and that taxpayers are now being called on to bail out financial strapped and mismanaged General Motors.
The human capital movement is much more than a new management fad. It is potentially a revolution in the way we think about American business, education, and government. In the spirit of this movement, and in the spirit of saving capitalism from its own folly, I propose that we:
1. Regulate banking and investment practices to ensure that they focus on their primary purposes – to provide stability to the economic system and enable genuine value creation, rather than simply optimizing opportunities for private wealth acquisition.
2. Pass legislation to prevent government regulators from profiting from relationships with the organizations they regulate – during or following their tenure as regulators.
3. Require that executive compensation be tied to the long term health and performance of the organization, and limited to a reasonable multiple of average worker compensation. Prevent extravagant executive compensation unrelated to genuine value creation or organizational performance.
4. Reward companies that adopt long term strategies that enable them to retain employees during economic downturns, rather than displacing costs through massive layoffs.
5. Use the current stimulus package to invest in our human capital infrastructure – including early childhood education programs, general public education, vocational education, and ongoing adult education and professional development training.
6. Address the problems of the growing federal deficit and the culture of consumption and consumer debt – to create a culture of ecologically sustainable and financially responsible development.
7. Make the hard choices needed to have a viable and affordable system of universal healthcare.
8. Create a culture of service where contribution to socially valued goods is prized and incentives are in place to attract needed talent.
These are the steps that are needed – and I am sure there are many others as well – to get our economy and our society back on track. This modest proposal is just good common sense, reflecting what ordinary working people, consumers, and business experts know to be the source of true value creation. We can no longer afford to treat the investment sector as the primary business of America, nor continue to privatize rewards when Wall Street is doing well, and then displace costs – on the backs of taxpayers and their children – when things go terribly wrong.
Much of the discussion on this blog has focused on trust, and specifically, building workplaces where trust and respect and reciprocity help engineer employee loyalty and facilitate creativity. Nothing tests trust in a workplace more completely than hard times. The latest numbers are alarming: America lost 600,000 jobs in the month of January. In the past year the country has lost 3.6 million jobs. Some of these job losses were a result of firms closing their doors, but many of these are layoffs. Mark Zando from Moody's reports: “Businesses are panicked and fighting for survival and slashing their payrolls." Where do layoffs get you? Gordon Medlock, who teaches in the Graham School's Human Capital Management program offers the following set of observations. -->
There are several studies that suggest that layoffs during times of economic crisis are negatively correlated with return of customers during the upswing and increase in shareholder (stock price) value. One of the clearest is the analysis of Southwest Airlines' no layoff policy and its responses to the airline industry crisis after 9/11. In a study comparing all the airlines during that period – “layoffs negatively predicted recovery of [a company’s] passenger traffic with 99% certainty, and negatively predicted recovery of its stock price with 95% certainty” (from The Southwest Airlines Way, by Jody Hoffer Gittell, published in 2003). In other words, the more employees you laid off, the longer it took for customers to return and for your stock price to recover.
Another (less rigorous) study by John Dorfman, a money manager and author of the article “Job Cuts Often Fail to Bolster Stocks,” reported that companies that announced job cuts during the period form 1996-1997 underperformed comparable companies from the S&P 500 by a difference of 0.4% growth versus 29.3%. Of course there could be other factors besides the job cuts to account for that difference, but it suggest that companies that, for whatever reasons, feel the need to make those cuts, are also the companies that are not doing as well as their competitors.
The key point in all of this, however, is that you can’t simply implement a no-layoff policy if it is not part of your long term strategy. Companies that have no-layoff policies, such as Toyota and Southwest and FedEx, all have business plans that enable them to retain valued employees during economic downturns. They include strategies related to retention of cash resources, lean organizations, gradual growth, long term strategy perspectives, continuous improvement strategies, and a commitment to valuing their people. If a company is not committed to these values and strategies – and the comparison between General Motors and Toyota is an excellent case in point – then it will be much more likely to use layoffs to cut costs.
Finally, there is a lot of research on the connection between employee engagement (the willingness to apply discretionary effort to achieve results on the job) and the financial success of an organization. It is well documented that layoffs adversely affect employee engagement, morale, trust, and productivity.
This isn't a partisan essay. At least it isn't intended to be any more partisan than were, say, our essays about Pixar. Like everything we discuss, our purpose here is to shine a light on important trends in managing talent and employing social networks.
That effort at careful bi-partisan positioning taken care of, we should be free to say: Barack Obama's campaign should be used as a case study in classrooms across the country. The Obama campaign made unprecedented use of social network sites and used existing web tools in exceptionally saavy ways to understand his supporters and shape and position messages to influence them. They employed some of the best talent in the field - including Joe Rospars, who managed Howard Dean's internet presence in 2004, and Chris Hughes, one of the co-founders of Facebook - and gave them the support and latitude to accomplish what they were brought in to do. There was an impressive degree of integration across the different dimensions of the campaign. When television ads were launched in battleground states, they were also posted on YouTube and displayed on the campaign's Facebook page, where they were picked up by Obama's 2.8 million Facebook friends and shared with others. Any gaffe by John McCain, Obama's Republican opponent, was similarly broadcast across the wide internet landscape, which the campaign understood better than their rival did.
The Obama campaign understood that "people influence people." Every time a new supporter signed up to be one of Obama's Facebook friends, that supporter's new affiliation was automatically broadcast to all of his or her Facebook friends. On average, each Facebook user has 150 "friends" plugged into his or her network, some have as many as 600, a few have many more. Of course, many of these "friends" already share political leanings, and many may also be part of Obama's Facebook community. Still, doing the math, we're talking about a potential social network of 420 million people - greater than the entire population of the U.S.
Many of these supporters also set up their own accounts on My.BarackObama.com, where they could blog about their own campaigning and canvassing efforts, post photos, and set up their own fundraising pages with their own messages. As people registered on My.BarackObama.com or on the campaign's more conventional website http://www.barackobama.com/ (which was, functionally, just a different portal into the same content), the campaign gathered information about them. Some of this information was volunteered - name, address, email, cell number - but the campaign also deposited a cookie on each vistor's web browser, allowing the campaign to track where that supporter went after he or she left the site. This helped the campaign know where the supporter was getting his or her news and entertainment, helping to craft advertising plans.
Ultimately, every registered supporter was recruited, by carefully targeted emails, to donate, or volunteer at phone banks, or contribute to canvassing and get out the vote efforts. When volunteers showed up at campaign headquarters, they were given lists that were made more precise by the campaign's capability to gather information from its web-based resources. All of these campaign offices, set up across the country, even in states Democrats often skipped, were financed by the unrivalled web-based fund-raising accomplished by the campaign. Some estimates suggest the campaign raised somewhere in the neighborhood of $700 million dollars.
In the end, of course, Obama won the race and, in the process captured 7.7 million of the 11.7 million voters under 29 who cast a ballot. The number of voters under 29 was greater than the number of senior citizens who voted. It will take some time to fully understand the numbers, and grasp what motivated voters and which messages caught their attention. But there seems broad consenus that Obama's bet on younger voters paid off, and his use of the web and the power of social networking sites generated armies of volunteers and helped generate unimaginable financial support.
After this breathless rush through the campaign's accomplishments, let's pause to connect all of this to what we normally talk about here. Obama's campaign had the insight to see the web as a campaign tool with impressive reach, and, more so than any political campaign before, they grasped the utility of social networking sites to connect with people (and connect people to people). They brought in the talent to give shape and form to their ambitions. Furthermore - and this is a powerful lesson for workplaces - they trusted millions of supporters to do a great deal of the work, downloading videos and passing them around, creating their own content and sharing it. This might seem like a risky move for a campaign so focused on communicating a carefully scripted message - emphasizing the candidate's commitment to change, while backgrounding discussions of race - but the campaign was counting on a preexisting set of practices it understood very well. Or rather, that Chris Hughes knew well. From his work on Facebook, Hughes knew that most supporters would share videos and other content crafted by the campaign. What the campaign counted on was that their message would be passed hand-to-hand, shared among "friends."
We have emphasized the importance of trust in workplaces. The Obama campaign was confronted with a workplace extending across the full landscape of the United States, and had to deploy "workers" who were unpaid and had no formal position within the organization. Yet, for their model to work, they needed to trust these supporters to broadcast their message and carry out the groundwork necessary to get out the vote. If trust is possible in this context, why do so many employers fail to trust their workers in more conventional workplaces?
Every year, to begin the academic calendar, the University of Chicago invites new students to attend the Aims of Education address. A well-loved, accomplished faculty member is invited to give a talk, and is given no guidance on its content or themes. He or she is only told: We are inviting you to talk about the aims of education.
The talk takes its name from a speech (and later an essay) by Alfred North Whitehead. Why should we bring it up here? In fact, wiser heads - those with more practical opinions - might wave us off the topic. We are often told, mostly by the consultants who help manage our marketing and advise us on our "branding", that the University of Chicago is viewed as being too cerebral, overly theoretical. Dragging a British mathematician and philospher into our discussion of a reading about how Pixar manages talent can't possibly help change this belief.
But give us a few minutes. This is all about managing talent, and we will map out the connections.
One of Whitehead's more provocative claims in his address, originally given in 1916 to a roomful of fellow mathematicians, was this:
In the history of education, the most striking phenomenon is that schools of learning, which at one epoch are alive with a ferment of genius, in a succeeding generation exhibit merely pedantry and routine. The reason is, that they are overladen with inert ideas. Education with inert ideas is not only useless: it is, above all things, harmful.
To set this in a context, 1916 was in the middle of the First World War, a period in world history viewed by many as the moment when old ideas (about political life, social class, and the organization of the economy) where discarded and new approaches became accepted. One new realization that remains with us: after the War, and throughout the twentieth-century, we became more aware of the inevitability and persistence of change. We live in flux, and all of our activities, including business, need to be engineered so new ideas, new opportunities, and new technologies can take root.
It is clear, as we begin the twenty-first-century, that we can't afford to forget this lesson. Workplaces that are overly routinized or "inert", to use Whitehead's word, will in time become dreary, stagnant places. What is true about schools, is true about workplaces: to succeed they need to keep alive "the ferment of genius."
The brilliance - and success - of Pixar's management culture is that they recognize that genius is a product of organizational design. You need smart, talented people, but you also need to create processes - in Pixar's case, their incubation teams - where good ideas can be improved on, and benefit from the insights other talented people can provide. You also need an organizational culture that stresses trust and respect and mutual responsibility. Where employees can't trust one another, no one takes risks, and everyone falls back on routines and conventional practices. A workplace like that can't "ferment genius" and can't consistently promote creativity.
Digging deeper into the reading we began discussing in our last entry, Ed Catmull's account of building an environment to foster creativity at Pixar, we were inspired to ask some questions not taken on in the very useful essay. To start with: in a workplace where bad ideas and missteps are brushed aside, rather than a cause for punishment, what is the defintition of failure? And when would someone be terminated?
Reading between the lines, it seems clear that the one unforgiveable failure at Pixar is the inability to work with others. Whether it is because someone is slow to learn the workplace's culture, or she lacks the necessary social intelligence to participate in the give and take that characterizes a collaborative workplace, someone who continues to throw blame, or ridicule others' ideas, or seeks to claim credit for a co-worker's effort will upset a workplace that depends on trust, respect and reciprocity. Careful recruiting and attentive mentoring should limit the number of ill-fitting employees. But if someone gets through the net, and takes up residence within the firm, and fails to learn the culture and live up to expected norms, it seems clear an employee who lacks the talent to work with others, even if she is remarkably talented in many other respects, will be let go.
But Pixar, like other organizations, also needs its people to produce. So, for those who consistently fail to meet production deadlines, for example, the firm needs to take appropriate steps to limit damage to the company's work processes, reputation, and bottom line. So for those readers who are wondering if the type of workplace Catmull is describing is utopian, be comforted - a collaborative, trust-rich workplace is more forgiving, but it isn't blind to persistent failure.
Since we seem to have a handle on something, let's introduce a new reading, which will be shared at tonight's Smarter, Better Workplaces information session at the Gleacher Center. Ed Catmull is one of the founders of Pixar Studios and serves as the studio's President. His recent article in The Harvard Business Review, "How Pixar Fosters Collective Creativity", provides superb illustrations (pun intended) of how some of the things we have been talking about can be implemented. It weaves together our concerns about talent and the value of trust, respect, and reciprocity as social goods crucial to workplace success, while introducing something new to our conversation: the idea that creativity is the product of successful collaboration, not individual sweat and genius. Smart, talented people produce original, breakthrough ideas, but those ideas need to be refined and realized through collective effort. This is a fact too often ignored as we celebrate "great leaders" and "innovators." Consumers don't buy ideas, they buy products, or tickets to films, or sign up for new services, and the effort required to transform an idea into any of these marketplace-ready offerings requires the contribution of many, many people.
The trick, Catmull argues, is finding ways for talented people to work together, confident that they won't be pushed aside, or denied acknowledgement, or blamed if their contribution fails to solve a crucial problem, or produces unanticipated difficulties. This requires, as we have been proclaiming over the last several weeks, the engineering of a particular type of workplace, one where frequent interaction, across extended networks, produces social capital, that is, trust and respect and familiarity and expectations of reciprocity.
In too many workplaces, getting on the agenda - having an opportunity to have one's ideas reviewed by senior management - is a full-contact, competitive sport. In Pixar, the entire organization works to generate and incubate and improve ideas. Instead of elbowing past others, Pixar employees are encouraged to build on ideas offered by colleagues, not tear them apart. When bad ideas are offered up, the creative group sifts through other contributions looking for good ones. They don't waste time castigating the contributor who stumbled, because that weakens his confidence and his trust in the creative process, undermining his ability to collaborate further.
This belief - that creativity is a product of collaboration, not individual genius - doesn't suggest that employers shouldn't look for talent. Talented people generate good ideas. But an employer who recruits talented people, but inserts them into a workplace where competition encourages workers to keep promising but imperfectly fleshed-out ideas a secret for fear they will be stolen or ridiculed, won't succeed in producing many blockbusters.
