Any intelligent fool can make things bigger, more complex, and more violent… #einstein

“Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.” -Albert Einstein

We need fewer detailed rules, and more common sense

Over the past few weeks, I’ve been in debates with my colleagues on the subject and merits of detailed rules and procedures.

Many established firms such as public listed companies often document every single policy, process and procedure in manuals that rival the Encyclopeadia Brittanica in terms of comprehensiveness. This is often the standard practice in order to achieve ISO certification, and to for the firm to ensure that every single employee conduct their day to day activities in a predictable and standardised manner.

New employees need only to pick up the relevant manual and ensure that they fully understand and memorise what steps, templates, forms and people they need to work with in order to complete a certain task.

This orderly and predictable state of work activity seemed to work well with many firms for decades. And in fact, many firms institute controls and initiatives to ensure that activities adhere to the procedures manual and that variations in the processes are reduced.

This is a typical assembly-line type of work environment. Predictable work processes result in predictable outcomes (products and services) with minimum variance.

So far, so good.

Then, the technology boom happened in the mid to late 90s. Technology firms seemed to burst out from nowhere and suddenly started to take the market by storm. Companies such as Microsoft, Netscape, Amazon and Yahoo! started to win customers over with products and services that never even existed a decade earlier. Some of these start-ups reveled in the organised chaos of youthful employees and start-up culture. Anything and everything was possible. There were no limits to what could be explored and rules were broken everywhere.

As the world fast approached the year 2000 (“Y2K”), demand for updated technology solutions escalated. In the end, Y2K was a non-event.

Soon after at the turn of the millenium, the dot com phenomena imploded.

Only a few firms emerged unscathed. But a change in the business world had already begun. All of this enabled by technology and the fast proliferation of the internet and web based applications.

Companies such as Google and Amazon continued to grow from strength to strength. Microsoft, still the top dog then, struggled to make sense of how to deal with the new competition; whilst firms like Netscape, Yahoo! and a whole host of other technology companies fade away as quickly as they burst into the limelight.

Google led the technology rush and the internet continued to premeate into every home, office, school and places for human interaction. With a simple business model and easy to use technology Google became synonymous with the web and with searching for information and knowledge. But even mighty Google was unprepared for the next wave of internet revolution in social networking.

Early web 2.0 champions such as Myspace started to capitalise on the innate human need to connect with other people. Realising that humans loved socialising and sharing their interests, the likes of Myspace and YouTube raced ahead to be the early winners of the social media space. But even they had not expected a Hardvard student would start building what today is the world’s largest social network from his dorm room. Today Facebook has close to 800 million users (circa Oct 2011), and the likes of twitter garnering around 200 million users by late 2011. Together, Facebook and Twitter have been credited – rightly or wrongly – with a significant revolution in how people connect with each other and the speed of how fast news and information is distributed to a wider population. Both Facebook and Twitter have been linked to social and political revolutions in many countries.

Then the Global Financial Crisis (“GFC”) happened in 2008. This plunged the world to the edge of depression. The world has yet to recover from this crisis, teetering from one economic malaise to another. All throughout this, changes have been happening: Apple suddenly introduced the iPhone. Back from the brink, Apple became the darling of the industry and the stock market. It has disrupted the phone business, and to some extent the PC business with its iPads.

Today we are on another verge of a major change in the world as we know it. Crude oil prices plummeted, technology continues its breakneck pace of development, economic power is visibly shifting towards the east, social dislocation is happening, terrorists organisations creating fear, political power shifting towards the right… many of these changes pose unpredictable outcomes. We have no way of anticipating how to set rules for things we do not know. We will be in a state of flux, and in such situations more rules just doesn’t help. We need more common sense. We need to get back to our core, and universal values and work with this. Time to bring about positive change, rather than reacting to negativity.

There is a painful paradox in trying to separately optimise every part of a firm

Firms work on the basis of the interaction between different people, or groups of people. No single person in an organisation can deliver business results without having to rely on another person. The same applies to interactions between processes and systems.

Firms thrive on interconnectivity, interaction and interoperability.

This is why running optimisation / efficiency / target setting exercises (typical management activities) on discreet parts of the organisation often spells doom. Most insidious if performance measurements are done on discreet basis as this creates silos, and functional / individual mercenaries.

The firm may have every part meeting its targets and expectations, but the whole organisation failing in its purpose and strategic objectives.

This Harvard Business Review article describes this paradox best: Optimizing Each Part of a Firm Doesn’t Optimize the Whole Firm

Throw out the annual target setting scheme, it’s disconnected to strategy anyway.

Again and again, we wrestle with the disconnect between strategy and our performance measurement systems.

Often our strategy is aimed at lofty and aspirational goals such as growing our business profitably and sustainably. However, we we sit down to define our annual targets we start to get into a negotiation process of what those annual goals are. On occasion, we argue (validly, of course) that this coming year’s goal will need to be softer than before – because the market situation is a lot tougher than we expect / our new product launch cycle is running behind, etc. So grudgingly, we agree that this coming year the targets would be softer or lower than the preceding year. As ever, we promise that the year after this, it would be better. Well, let’s see.

What happened to growing our business profitably and sustainably?

This is an example of how current performance measurement systems we implement are so disconnected with strategy at best, and downright value destroying at worst.

Some would argue that we should negotiate harder to reflect these strategic goals into the performance measurements. Unfortunately, this is an exercise that ties up valuable management resource and creates dissatisfaction. Worse, it can create resentment of the original strategic goals because we believe that those goals are impossible. And thus we breed this thinking internally.

This is why such performance measurement systems have to go. What is the solution? I will post about this later. For now, do give me your comments.

The problem with performance management systems

Most performance management systems tend to be very rigid and often creates dissatisfaction and dysfunctional behaviours amongst employees.

These are often due to such systems being disconnected with the firm’s strategic objectives and its stakeholder needs.

An example is most firms want to improve performance – be it profits or service. Yet when performance management targets are identified, people are measured on things that have no or very remote connection to these objectives. Then management feel that staff are not doing enough to advance the firm’s objectives. Thus the dissatisfaction when it comes to appraisals.

Another angle to the problem is when determining the staff targets and KPIs, the discussion is frequently a negotiation with a view from the staff to achieve a good rating during appraisal. Hence, low balling those targets. The supervisor will either force a higher target through force of will or simply forget about it. Both approaches are disastrous.

Yet, every year many firms continue with this tedium and wonder why the firm’s results are not what it needs to be.

This is why it is high time we radically change this obsolete practice and explore something else.