Why the planned Facebook IPO is not really about creating value?

Roger Martin, Dean of the Rotman Business School in Toronto, recently wrote about the problems plaguing capitalism in the 21^st Century. Among other things, he calls for us to focus more on “creating value, rather than trading it”. The current news frenzy about the impending size of the Facebook IPO is a prime example of how our media and investment communities have become fascinated with “trading value” rather than creating it.

What things of value has Facebook really created in its history? Not much really, in my opinion. All of the technology that Facebook uses already existed, or has been created by human beings not associated with Facebook. Zuckerberg and his team have not really created anything new. They just applied existing software and hardware technology to something it has not been applied to before. That is not the same thing as creating some fundamentally new – creating value.

The innovation that Facebook can claim is that it has allowed individuals to engage over computer networks in a form of communication that has been important to human being for generations that go back past recorded history. Let’s go on a bit of a bio-evolutionary sidetrack to understand this, and then come back to the planned Facebook IPO.

We evolved as social and abstracting, language-using beings. Our multi-layered, complex brains developed over many millions of years and endless generations to cope with the complexities of our lives. Our evolutionary history has resulted in our having brains that can do more than one thing at a time. We have continually added capabilities to our brains, adding the new abilities to while retaining old ones. As a result, we have many capacities that occur at a preconscious level. We have others that result from the interaction of old abilities with newer ones. As a result, our internal psycho-dynamics involve 5 highly intertwined streams of capability.

1. I- Me

We live with a sense of self (I-Me) that is capable concurrently of being-in-the-moment (I) and dissociated from that immediacy through conscious reflection on my immediate being (Me). We are probably the only species on the planet that has this ability. (Although our inability to communicate intelligently with some other highly social species – whales, dolphins, and perhaps elephants – means that we cannot really know for sure.)

2. Us Two

We form and thrive in complex multi-layered pair-bond relationships that last over long periods of time. We form them not just for the purpose of reproduction, but also for enhancing our personal survival, sharing physical and emotional pleasure, increasing our personal growth, and enhancing our status in our social world.

Although other species form pair bond relationships, we humans invest them with a level of meaning and importance that seems unique. We bring our concurrent I-ME psychodynamics into them. We are the only species on the planet that is consciously obsessed with the moment to moment and long term elements in our pair bond relationship.

3. Our Family:

We raise children for an extended number of years, taking them through a complex series of development stages that equips them to live as adults on all of the levels captured in the phrase “I-Me / Us Two / Our Family / My Tribe / If –Then”. We are a unique species in this regard. We have the longest and most complex developmental history of any species on the planet. As a result, the importance of, and the amount of time we spend being aware, of “our family” history and connection is also a defining characteristic of our species. We cannot separate our sense of self (I-Me) from our being a member of “Our Family”.

4. My Tribe

We lived in tribes for far longer than we have lived in societies. Tribes are collections of human beings that number in the hundreds. Each person in a tribe knows, at some level, all of the other members of that tribe. This is the most fundamental characteristics of the tribal human psychodynamic.

Societies are far larger than tribes. Societies are collections of tribes. Societal dynamics are the result of the fact that when living in a society, an individual can be a member of multiple tribes. For instance, when you go to work, in participate in the life of your “work tribe”. When you go to a sport bar and cheer your favourite team with your friends, you participate in the life of your “sports” tribe. When you participate in the activities of a political party, you are a member of your “political” tribe. This is a fundamental characteristic of a society. It allows individuals to concurrently participate in the life of multiple tribes.

Human beings have lives as individuals, as members of families and as members of tribes for millions of years. They have lived in societal groupings for thousands. Although no doubt, evolution is adding capabilities to our brains for participating in societies, we are the very early beginning of this evolutionary process. Most of the time, we cope with the pressures and issue of societal life by using our tribal psychodynamics.

Many of the difficulties we face in current societies come from the fact that we evolved as tribal creatures, not societal ones. War for instance started as an inter-tribal dynamic, when tribes competed for limited resources. We now live in a world where our grasp of technology and our application of it to the tribal business of war threatens our existence as a species. Today in war, our internal psychodynamics, including our emotions, are tribal, but our probability of survival is based on the enormously destructive application of science to the technology of war. War has become disconnected from its first purposes, ensuring the survival of the tribe. War now threatens our survival as a species, something it has only done in the past two centuries. Yet we seem unable to stop war.

We evolved complex in-group / out-group psychodynamics that allow us to participate effectively as individuals, as pair-bond mates, and as family members in tribal life. Our ability to exchange good / services (trade) and our capacity to bind our behaviour through contracts (live by law) developed from our living in tribes and from our interacting with members of other tribes.

We respond to tribal based normative patterns that govern our I-Me, Us Two, and Our Family behaviours. We follow leaders that are necessary for the success and survival of our tribes.

But often the limitations inherent in these tribal capabilities seem to distress the societies we now live in. Just look at the negative parts of the current political process, of which the negative advertising current in the US Republican race for the Presidential nomination is only the latest example.  in the US.

5. If-Then

As well our abilities on these four human levels (I-Me / Us Two / Our Family / My Tribe), our evolving brains also developed the ability to abstract and to reason using language. We have the capacity to think and to reason about space in that that is not limited by the fact that we live, like all living creatures, in an immediate here. Our sense of space transcends the immediate space we are acting in. We think and talk about the here and the there naturally, without questioning the wonderful thing that this ability really is.

In same way, our sense of time is longer than the immediate moments in which we live. We abstract from this immediate now, just as we abstract from the immediate here in which we live. As a result, we have a conscious sense of time that includes the past, the present and the future.

These two capabilities are the basis on which we evolved our ability to logically reason. If-then reasoning involves putting things in past-future sequences. It can only develop if we have a sense of time which includes the past and future – an abstract sense of time.

In the same way, spatial if-then reasoning can only evolve once we have a sense of here and there – an abstract sense of space. Language was necessary to, an evolved as part of us having a Us Two, Our Family, My Tribe level of psychodynamic capability. Language is the framework within which we developed to have ability to do past-future and here-there if-then reasoning. Our ability to logically reason is the result of our complex lives as I-Me, Us Two, Our Family, My Tribe creatures.

Our evolved logical, reasoning abstract consciousness interacts with the preconscious many systems we use to deal with the needs of ““I-Me / Us Two / Our Family / My Tribe” lives. We are not consciously aware of much of this interaction.

Side Note:

But we are developing the ability, through our societal creation of disciplined forms of communicated thought (i.e. science). to gain insight into these dynamics. Our creation of technologies that allow us to examine our brains’ functioning from the outside in (e.g. thermal and magnetic of brain functioning) is contributing to this growing insight.

It will be interesting to see where all of this will lead. More and more, we applying the “if-then” – logical reasoning part of our mental abilities to generating insight into the way that the “I-Me / Us Two / Our Family / My Tribe” parts of our brains work. We are only just beginning.

We also use time and space abstracting, shared logical reasoning to create technologies which have and are dramatically restructuring the material conditions of how we live on this planet. We are being to realize that not all of this may be positive for our future as a species. But we have evolved over millions of years, and barring a self made planet wide disaster, are likely to continue to do so for millions of year to come.

Personal Note:

The only reason that I might want to travel in time is to see where this fascinating l I-Me / Us Two / Our Family / My Tribe / If –

Then evolutionary process might take us in a million years or so. Ah well – it is not to be.

So how is all this relevant to Facebook? What Facebook did was automate one of the two integrating capabilities that evolutionary human beings have developed to cope with the needs of their complex internal psycho-dynamics – gossip. Telling stories about our selves, our partners, our family members and the folks in our tribes is profoundly important to re-affirming who we are on the “I-Me / Us Two / Our Family / My Tribe” levels.

Our other great integrating capability is story telling. Stories, starting with the family stories we hear as children, help us make conscious the results of the complex, intertwining of our I-Me / Us Two / Our Family / My Tribe psychodynamics. Stories, both historical and fictional, also educate us about “what we might be” as a result of our intertwined internal psychodynamics. This explains the tremendous importance of all forms of businesses related to story telling in human history, e.g. writing, publishing, entertainment, movies, etc.

Facebook uses existing technology to make gossip – personal story telling – easier for people. Facebook extends their ability to do so over distances and times that exceed our physical limitations. Suddenly, using Facebook, you could tell a story about yourself or another individual that could be access by other people even though they were far away or not connected to you in you’re here and now time. Given the importance of gossip and story telling in human life, it was no wonder that Facebook took off once people realized what it could do.

As it matured, Facebook the organization then used the size of its community to attract high levels of advertising revenue. Advertising is a form of human story telling devoted to selling products and services.

As a result, Facebook makes billions of dollars annually. But it is from doing nothing something fundamentally new. I personally believe that Facebook almost blundered into this combination of  success factors, using technology to extend the reach of human gossip – personal story telling. But I cannot be sure. After all, I was not there as Facebook the organization developed and grew. That also explains why I am not as rich as Mark Zuckerberg.

I am not the first person to say that Facebook “really does not need the money”. So why is it bothering? How will Facebook use the almost 4 billon in cash it has on its balance sheet and the new 5 billion that financial pundits are saying an IPO will raise? Will Mark Zuckerberg and the other folks who control Facebook use this money to “create new value”? My bet is no.

Instead, I believe that we will see Facebook “trade value” through acquiring other technology companies. That will be unfortunate. But Facebook’s has a history not really creating anything fundamentally new. Instead, it almost blindly applied technology that already existed to parts of human life that had not been automated before. The founders of Facebook seemed overwhelmed by the fact that Facebook’s appeal extended far beyond the universities that they saw as their marketplace just 7 or so years ago. All of this leads me to believe that “trading, rather than creating, value” is the most likely future use of all of this money.

Shape The Future, Don’t Appraise the Past: Performance Contracting is the Key to Employee Engagement and Organizational Excellence

The HR and business press is full of articles about how Generation X, Generation Y and the next Generation now entering the work force are different from the Baby Boomers ware about to retire. But in one way they are not so different. Employee satisfaction surveys still tell us, like they have for the past forty years, that employees do not believe that performance appraisal helps them improve their performance.

So why are we as managers not listening? There are a variety of reasons. Some have to do with organizational inertia. Some have to do with the fact that managers appreciate the re-enforcement of the relative power positions inherent in performance appraisal. But most importantly, we, as managers, really haven’t had the business support systems that we need to move from performance appraisal performance to performance contracting.

Contracting for performance with our direct reports requires that we commit to the regular independent delivery of feedback to them. That feedback has to be based on agreed upon metrics. Those metrics, in the majority of cases, need to be tied to the automated business applications that we now use to run our business.

So the business tools that we need are finally there. Now all we need to do is change our attitudes. We need to stop appraising people. We need to stop telling them what they did and did not do in the past. We need to stop rating them on a scale that invariably involves subjective judgment.

We need to move to contracting about the future with these individuals. We need to help them get crystal clear on what it is they are expected to do. We tell them exactly how we will evaluate whether or not they accomplish the things they contract to do. And finally, we need to make sure that they get the data on these metrics directly from the automated business applications that we both use to do our work.

For the organizations that do this, magic happens. Most people want to do well. Most people want to contribute to the organization for which they work. Most people, when they get regular independent feedback on how they’re doing, will take steps to correct their performance when they go off track. The best of them will strive to exceed their contracted delivery levels

That’s the essence of performance contracting for excellence. It is also the basis of effective boss – direct report coaching. Together, these two are the key to engaging people in the workplace. That engagement is, and will be ever more crucial, in the current and coming competition for skills and talent.

Let us as managers demonstrate to the people who work for us that we can do what we expect them to do: listen to feedback. Let us take what we’ve been hearing on employee satisfaction survey after employee satisfaction survey seriously. Let’s start shaping the future, and stop appraising the past. Commit yourself to performance contracting with your direct reports.

Here are some links that will help you accomplish this.

Why Performance Contracting?

C-Level Performance Contracting: Getting It Done (A How To Guide)

Both are short voice over presentations that run in a browser over the Internet.

“Shape the Future, don’t appraise the past”. ™

How do you performance contract for organization turnaround?

Organization Turnaround

Over the last two years, at executive networking sessions, I have heard hundreds of executives describe themselves as being excellent at turnaround. As I listened, I realized that they were describing their process improvement skills, not their corporate turnaround abilities. They were talking about fixing up part of the whole, not turning around the whole organization when it was under threat.

One morning, as I was driving, I hear a professional house renovator – a “re-newer”  - describe he what did. He took care to distinguish what he did from folks who called themselves “renovators” but were really “part of a house” fixer-uppers.

“When I renovate a place, the only things that will stay the same about the house are its external structure and its internal supporting walls. I pretty well gut everything else. When I am through, it’s a very different place to live in. It is a much more effective and efficient house. It operates better as a home, and costs much less to run. It usually looks better from the outside as well, although everyone can still see that it is the same house.”

What an insight!  I immediately understood the difference between all those executives I have been listening to and corporate turnaround experts.

Process Improvers	Organization Renovators
Make improvements to 1 or more existing processes through improving automation or re-organizing work flow.	Address what needs to happen to ensure this organization survives and dramatically improves its results. Figure out how to do it without destroying the organization (i.e. without tearing down “external and internal supporting walls” = destroying customer relationships or financial viability) while change is occurring.
Fit improvement into the “day to day” normal way of doing the other work in organization.	Tackle all processes in the organization and re-do them to achieve dramatic success.Do so a way that ensures that organization survives while whole scale internal change is on-going (i.e. the organization continues to serve customers, to provide services or make products, to pay its bills etc).
Help existing staff learn new improved processes	Challenge existing staff to come up to the new performance bench marks. Train them to do so if they are willing and if they can.  If they don’t, bring in people who do and fully integrate them into the team.
Fit the new ways of doing things into the existing culture of the organization.	Re-shape the culture, energizing the people. Get them to believe in their own personal future with the organization. More them from “react and get along” to “pro-act, create, provide services at extraordinary levels, achieve extraordinary results.

The metrics that are used in contracting with an executive for the improvement of existing process are straight forward. Processes do something. They produce output of some kind (e.g. service transactions, produces, units of information ….). They take energy to do (e.g. people hours, head count, …).

To develop a process improvement metric, all you have to do is count the output and the input reliably. Put units of output over units of input and you have a useful “point in time” metric for that process.  Add a relevant time period (e.g. days, or weeks, or months). Then watch the trend over time. When you do so, you have a clean, clear performance metric. Here are some classic examples:

• bank customers served per month / teller hours per month,

• airline passenger miles per month / air crew hours per month,

• Widgets produced per day / manufacturing staff hours per day.

Trend metrics such as these will tell you if the executive is “improving” the process.

You cannot take this approach when you contract with an organization renovation leader, and his or her team. Every process inside the organization will be different by the time they through, just like the entire interior a house will be different by the time house renovators are through.

Renovating an organization involves great urgency to make wide-ranging change under continuous conditions of organizational stress. Sometimes, part of the change goes backward for a time, in order for the whole change to go forward. (See The Reality of Enterprise Turnaround for more insight into these dynamics.)

So how do you “measure” the performance success of an organization renovation leader and team?  You need to take a much broader approach to metrics than when you are contracting for process improvement.

1. Use metrics that look at the whole organization from the outside in.

An example is “$revenue produced / $dollar of operating expense” per month. Watch the trend. A downward slip for a month or two is expected. But a clear downward pattern that shows no sign of turnaround is not.

All kinds of process change will be happening in an organization during renovation. However, the overall pattern of positive change will be reflected in the trends in such “from outside the organization looking in” metrics. Using a number of them is better than using just one. When you do so, you can see if the general pattern is positive, enough one or two may be on a short term downward trend as change moves forward.

Add these whole organization metric trends to a “menu” of trend metrics that focus on specific internal process. An experienced organization renovation team uses both to monitor the impact of what they are doing both on specific processes, and on the whole organization.

2. Expect the organization renovation leader and team to show how they are making both short term immediate changes and long term changes at the same time.

Listen to them as they talk about this with you on a regular basis. If they cannot show how they are doing this, then this absence is in itself a “negative metric”.

Ask for regular “review” sessions with the team. Expect the leader and the team to “insist” on having them. Expect them to initiate on the development of process specific metrics that show what is happening as a result of their changes.

An experienced organization team is profoundly metrics based. They do not believe in the “power” of their personalities as the key to change. They do expect turbulence during the change. They have an integrated approach to change that both makes sense in the longer term and adapts to short term events as they move the organization renovation forward. Just like a house renovator, they take what they uncover into account as they make change.

3. Expect negative trends in some of the process specific improvement metrics while you are seeing positive trends in others.

The turbulence experienced during an organization renovation can means that things can look worse before they look better. Just imagine what the inside of a “renovated” house looks like before house renovators start building the new walls.

4. Work with renovation team to identify the “supporting walls” for this organization – the key things that must continue to be in place while the change is happening.

Develop metrics for each one. “Revenue per customer” and “customer satisfaction / engagement “ are two examples for a customer service organization.

Watch the reaction of renovation leader and the team to any negative sustained trends in these metrics. They are about the organization’s survival. Expect them to understand the importance of these metrics, and take negative trends in these key “survival” metrics extremely seriously. They need urgent corrective action.

Turning around an entire organization is very different from turning around a specific process within an organization. But you can still develop effective performance contracts for such total change. You just need to make use that the performance metrics that you use reflect the totality of the change. You will know that you have the right turnaround leader and team when they are just as concerned about developing, monitoring and adjusting their work to a set of such metrics as you are.

“Shape The Future, don’t appraise the past.”™

Roelf Woldring (416.427.1567)

How do you use performance contracting to pick “good”, rather than “bad” organizational leaders?

“Why Are We Bad At Picking Good Leaders” is 5th on Harvey Schachter’s Toronto Globe and Mail Ten Best Business books of 2011. In it, Jeffrey Cohn and Jay Moran present the 7 characteristics that they correlate with good leaders.

1. Integrity
2. Empathy
3. Emotional Intelligence
4. Vision
5. Judgment
6. Courage
7. Passion

These qualities have been praised by many other “leadership” writers over the years. Cohen and Moran tell organizations to select for organizational leaders who demonstrate these qualities. They provide “stories” which illustrate how they believe that organizations can do so.

But all of this advice may be missing an essential point. Finding a person who is exceptional on these 7 qualities may be a next to impossible task for most organizations.

Suppose that a “good” leader needs to demonstrate possession of all 7 qualities at a level that is at least 2 standard deviations above average. Simple math will shows that the likelihood of finding, i.e. selecting, such a person is very slight.

The normal distribution graph shows that only 2.4% (=2.2% + .2%) of the population will be 2 standard deviations above average when you consider 1 characteristic. If you expect an individual to be 2 standard deviations above average on 7 qualities, you have to multiply 2.4% by itself 7 times. If you do this on your calculator or in Excel, you will get a very small number indeed. The following table shows the probability of finding a person who is 2 standard deviations above average on a progressively greater number of qualities. As you can see as you want people to have such outstanding levels on more and more qualities, the less likely you are to find them.

Let’s make it easier. Say that a good leader only needs to demonstrate these 7 qualities at a level that is 1 standard deviation above average. Even in this case, the chances of finding individuals who demonstrate most or all 7 of these qualities at this above average level are still pretty slim (2.7 people in each 1,000,000).

But we need to move beyond statistics. Cohn and Moran’s 7 qualities are not “simple” human behaviors. They are human characteristics that depend on a complex interactive mix of genetics, up-bringing, experience and education. This is the reason why years of time and millions of dollars of organizational investment in “leadership” training and development have not really produced an abundance of “effective leaders” who posses these 7 qualities at these levels.

Does this mean that most organizations might as well forget the process of “finding” or “developing” good leaders? I don’t believe so. What can an organization do find and to develop better leaders?

Organizations certainly need the succession planning processes that Cohn and Moran advocate. But organizations need to be base their decisions about individuals in such succession planning processes on an underlying performance management process that is strongly based on forward-looking, metric-based performance contracting.

An individual who consistently achieves or betters metric based performance targets over a number of years, in a variety of executive positions, is a potential future organizational leader. That person is demonstrating that she or he can apply the “right” personal characteristics to stand out from the average performer in “this” organization. Useful leadership is always demonstrated in the context of an organization’s shifting specific economic, technological, social and cultural conditions over a number of years.

The abstract “leadership characteristic” labels used by Cohn and Moran, and many other writers on leadership, tend to ignore this. Executive search consultants and academic writers turn “leadership” into an abstraction precisely because they are removed from the day-to-day performance of people in their client organizations. They do not have to deal with leadership as a concrete set of behaviours demonstrated by a specific individual that lead to valued results in a specific organization as over a significant period of time.

Executive search consultants perpetuate this tendency to relate “leading” to these kinds of highly abstract personal characteristics. It is a core assumption necessary to the continuation of their business. Unless clients believe that leadership is “transferable” from one organization to another, retained executive search for leaders from outside an organization makes no business sense.

If we approach “leading” in a less abstract way, and focus more on demonstrated “in context” performance, organizations are more likely to succeed at picking “good” leaders. Organizations that seriously want to “pick and develop” the leaders they need for the future will do the following.

1. Organizations will take care to develop their internal performance contracting competencies. They will use forward-looking performance contracts. These contracts will include a process by which boss and subordinate contract to use metrics to track subordinate progress. These metrics will derive from the automated business applications the organization uses to track and to manage the work done on a day-to-day basis.

Once such a forward looking contract is “signed” by both boss and subordinate, these metrics will be delivered independently to both boss and subordinator over the course of the performance period. As a result, the power relationship between them will shift. Bosses are more likely to become coaches when subordinate performance goes off-track. Subordinates are more likely to “ask” for help when they see that they are under achieving.

This performance contracting and progress monitoring process will be in place for at least the “manager of others” levels and above in the organization.

2. The senior most executives in such organizations will systematically review actual performance on such performance contracts to identify top performers: – individuals who consistently achieve and deliver at or beyond their contracted performance metrics.

3. These organizations will promote such top performing individuals so that over the years their job scope becomes more complex and wide ranging. As a result, maintaining “top performance” status will become harder and harder over time. This will refine the identification of potential leaders based on actual performance, not personal loyalty or personality fit between boss and subordinate.

4. These organizations will “move” such top performing individuals to a variety of assignments over the course of their career. This will allow the organization to see if their ability to deliver at or beyond contracted performance levels remains consistent in a variety of organization environments (functional, operational and geographic).

”Picking good leaders” in this way will take commitment over a number of years. The performance contracts for the CEO and the CEO’s immediate reports will consistently require the presence of metrics that “show” that this is being well done.

Organizations that do this will not be “bad” at picking good leaders. Instead, they will be shaping their futures in way that increase their probability of long lasting competitive success over a number of executive generations.

“Shape The Future, don’t appraise the past.”™

Engage your staff – start performance contracting and stop performance appraising

Are you, like thousands of managers, dreading the performance appraisals that you need to do at the end of every year? You are not alone. Just about every survey of working professionals that asks questions about performance appraisal document the discontent that people feel with the performance appraisal process.

So how do you make this better? How do you avoid the year end performance appraisal blues? Simple, really. Make a resolution to move from performance appraisal to performance contracting in 2012. Here’s how to do it in seven easy steps.

1. Start by making a list of each of the people for work for you. Then for each one, brainstorm the things that they do for you. Use the outline facility in Word or a software tool like Inspiration or paper and pencil, whatever works for you.

2. Once you have an initial list, re-organize it until you have between 3 and 7 main responsibilities for each person. It’s hard to work with more. if your list is longer, group things together until you have the 3 to 7 you need.

3. Now imagine that this person is going to do a great job on each of these 3 to 7 items throughout 2012. Visualize this. Run an internal film or set of pictures if that works for you. Ask yourself the following questions about each of the 3 to 7 responsibilities. Use the following script to help you do this.

“Jack (or whatever the person’s name is) is doing a great job at xxxx (fill in one of the responsibilities in your list). So what will I be:

◦ Seeing – what’s showing me that … (the person’s name) … is doing a great at this?
◦ Hearing – who’s telling me that that …. (the person’s name) … is doing a great job at this? What are they telling me?”

4. Translate what you are imagining – seeing and hearing – into a single statement – a measure or metric that lets you and others know that this person is doing a great job at this item. Ask yourself the following question as you do this.

“Will I be hearing and seeing this every day, every week, every quarter, …?”

That adds an important time dimension. The shorter, the better. Keep then under a quarter.

5. Organize your results into a single page. List the 5 to 7 responsibilities. Put the appropriate measure or metric below each one. Title the page “Draft performance contract for … the person’s name.” Make two copies.

6. Now you are ready to have a meeting with the person. Give the person a copy of the draft performance contract. Work through it together. See if the individual is clear about each item and each measure. Listen to any issues the individual has about any item. If these concerns help clarify things and make the measures even more concrete and specific, modify the page to reflect these concerns.

7. When the two of you are through, you negotiated a straight forward performance contract between you. Turn the modified draft into a final version. Make two copies of it. Each of you sign both copies, and then take one for yourself. Doing so finalizes the contracting process between you.

Only 1 more thing to do and you are on your way a hassle free performance appraisal at year end.

Schedule a meeting once a month with each person who works for you. Bring your copies of the performance contract. As you go through your one page together, ask yourselves:

“Am I seeing and hearing what we thought we would be seeing and hearing? Are the measures being met?”

“If yes, great -.let’s keep going.”
“If no, what can we do to get back on track?”

There, you have stopped performance appraising and become a performance contractor. Instead of looking back and evaluating, you are looking ahead and coaching.

You will find that your folks appreciate knowing what they have to and how it will be measured. They will probably surprise you by exceeding some of the measures.

If performance problems do occur, then the two of you have become collaborative problems solvers. Together, you will focus on fixing performance problems as they occur, not evaluating them after the fact.

“Shape The Future, don’t appraise the past.”™

Ho, Ho, Ho – It’s the Season for Performance Appraisals

I asked Susan, my horse sharing friend, what was going on with her as we drove over the stable to free lounge Hamish. She groaned, and said “It’s performance appraisal time. I just don’t’ like doing them. They always kinda spoil the year end at work for me.”

Susan is not aware that I work on executive performance contracts. Her comments reflected unhappiness with the performance appraisal process that I have heard from countless managers. I responded to her with “what’s happening”, knowing that there was a good chance I would hear things that reflected the reality experienced by millions of subordinates and mangers.

“Well, I’m working on my own appraisal. At the same, I doing the ones I need to do for the folks who work for me. It always feels like a game to me. I haven’t had a single conversation this year with my boss about what I’m supposed to do and how she is going to measure my performance. And now she asks me to write up my own performance appraisal and rate myself. I know it’s tied to her concerns about how year end bonuses will be allocated. She’s done this to me every year that I have worked for her. It’s all a big set up game.”

By now, Susan was obviously discouraged. You could tell from her voice tone that she really didn’t enjoy talking about this. I decided to leave it alone when she continued on.

“They tell us that the performance appraisal at our company is objective and based on performance dialogue that we should be having all year. I try to do that with my subordinates. Because I hate not being clear on how I’m going to be measured myself, I try to be as clear about this with them as I can. Also, I know that they know that their annual bonuses are tied to their performance appraisal ratings. That makes all of us anxious. Money is money – we all can use more, especially at Christmas.”

Seeing that she was willing to go on, I asked, “Do your subordinates feel differently about this based on what you do?”

“It’s the power tripping and game playing that really gets to me. We all know it’s about money. The performance appraisal rating we get directly determines the size of our annual bonus.”

She looked out the car window and went on.
“I get along reasonably well with my boss during the year, but it always seems to fall apart at year end. She asks me to complete my appraisal rate myself. I already know that she’s already decided what rating she is going to give me. I also know it has more to do with how she wants to spread out the bonus money she has overall folk she has working for her. She clearly enjoys the power position that this puts her in. My final rating is going to be based on a bunch of things, many of which have nothing to do with me or my performance. So puts me in a real bind. I struggle with it for days before I finally stop thinking about what I did during the year and just try to guess at what I think she wants me to rate me.”

Making sure my non-verbal cues were sympathetic, I asked “what about the performance appraisals you have to do for the people who work for?”

“That’s just it”, she responded, “I know my boss’s real concern is about how she’s going to distribute the pool of bonus dollars that have been allocated to her. Part of that relates to who gets what among my subordinates. So she’s not going to engage in real dialogue with me about what they did during the year. Sure, she will go through the words, but she finalizes my ratings of them based on how she wants to spread out the money. I sense that she’s doing calculations in her head about this the whole time we are reviewing my ratings. And she always does this, before she tells me what my own rating is going to me. So even if I disagree with her about one of my folks, I don’t really push on it, because I don’t want to pull down my own rating.”

“What does that do to your relationships with the folks who work for you?” I asked.

“Poisons them, quite frankly, at least until everybody knows what they’re bonuses they are going to get”, she responded. “They know perfectly well how my boss handles this. It is kinda of an open secret no one talks about. They play up to her, especially to her, more than they pay attention to me. The final ratings that my people get have more to do with how effectively they manage my boss’s feelings about them than the work they do for me. And I suspect the fact that some of my folks, who are good-looking members of the opposite gender, really know how to subtly, without being obvious or foolish, influence her feeling bout them. Again, it is almost an open family secret. Everyone knows it. No body ever talks about it. But everyone knows. And it is all o.k., because nobody ever takes it over the line whether it is obvious abuse or inappropriate behaviour. Quite frankly, I hate performance appraisal time.”

Susan was clearly not very happy. Since I didn’t want spoil our working time together with Hamish, I change the topic to how we will work with the horse today. Susan responded with relief.

Susan’s feelings about performance appraisal are not unusual. Survey after survey, both by outside HR experts and internal HR departments, have shown that most managers and subordinates dislike and do not trust their company’s performance appraisal process. They deal with it, particularly in light of the fact that so many companies tie annual or other bonuses to performance appraisal ratings. But very few survey respondents believe that performance appraisal has very much to do with people’s actual performance on the jobs.

There are several things that companies can do to avoid this annual feeling of malaise.

First, if you insist on using a performance appraisal process, try to schedule it so it’s not tied to the calendar year end. Scheduling performance appraisals on the anniversary of employment dates for instance avoids this concentration of unhappiness at year end.

Second, make sure that your company uses a performance contracting rather than performance appraisal approach. Since performance contracting looks ahead, it clarifies what bosses expect subordinates to do. Review “Performance Appraisal is Dead, Long Live Performance Contracting” (a voice over browser based presentation) – if you like to know more about how this works.

Third, structure your bonus scheme so that it has two or more components. One organization has the following bonus compensation scheme .Although each portion of the bonus is smaller than the one time annual bonus paid by their competitors, their employee satisfaction surveys indicate that their employees are very happy with this structure.

◦ A company performance bonus paid out to everyone in early February. The amount is related to their annual salary. It is based on the total company’s performance on financial and operational measures. These targets are communicated to everyone as part of the annual planning process.

◦ A team bonus which is paid out all of the members of each team in December, based on their achievement of a set of predetermined targets. Every member of the team receives a portion of this bonus based on the ratio of their annual salary to the total annual salary for the team. These performance targets are also developed and communicated as part of the annual planning process.

◦ An individual bonus directly related to the person’s performance appraisal ranking is paid out (or not) based on the person’s personal performance appraisal rating. Performance appraisals are scheduled based on the anniversary of each individual’s original employment date.

As we arrived at the stable, Susan sighed and said “You know, I would just like to know what I am supposed to do, and how I can going to be measured on it. It would get rid of the games.” Susan and millions of other employees agree. Yet somehow, organizations are stuck in a performance appraisal rut. As a result, “Ho, Ho, Ho” means anything but employee satisfaction during each year end’s performance appraisal season.

Why Did The Canadian Election Leave Me Feeling So Disgruntled?

Politics is a Moral Enterprise

I strongly believe that politics in a democracy is about morality. I think that political leadership, both during times of elections and in between elections, requires a personal commitment to an openly-stated moral creed. I believe that individuals who make the choice to run for political office but do not openly tell electors what their personal values are, engage in a form of manipulative contempt of the electorate. They treat electors as a means to an end – the power to impose their personal values upon the rest of society. In essence, they are a political version of Michael Maccoby’s business Gamesman.

That does not mean I believe that a politician can never make personal mistakes. Nor does it mean that I believe a politician must always behave according to that person’s moral code. It does mean that I believe that politicians’ behavior should not be judged by some version of “the public believes in this moral creed”, as created by the media.

I believe that individuals making the choice to live a political life are also making the choice to be open with people about the beliefs, which guide their political decisions,

◦         both their public decisions, the ones available to electors and the media,

◦         and the private ones made within the party apparatus in which they work.

The reason that I’m left with a sense of disgruntlement after yesterday’s election is that I believe that the behavior of the majority of politicians in Canada does not align with these beliefs. Let me demonstrate why I think that this is so through considering the behavior of the three main party leaders in the recent election..

The Conservative Approach

My view of Mr. Stephen Harper is that he is an excellent political tactician. The way in which the Conservative campaign was conducted:

◦         the focus on local important issues in certain ridings (e.g. long gun registry in rural ridings),

◦         the appeal to the local ethnic vote in ridings with significant ethnic populations,

◦         and the focus on the “evils of the supposed coalition between the main opposing parties” are all examples of such political tactics,

demonstrated this.

The Problem with a “Tactics”-Based Approach to Elections

However, the constant dialogue about Mr. Harper’s “supposed hidden agenda” that characterized the last two elections in Canada reflects the fact that we don’t have open statements from him which give us insight into his moral creed.

◦         Tactical approaches to gaining democratic power as a means to personal moral end

◦         and the language of mandate as a means to put aside the different moral points of view held by substantial portions of the population

do not fit with my sense of a healthy democracy. In his acceptance speech last night, Mr. Harper stated that his party would govern in a way that reflected the “views” of all Canadians in the next four years. But the history of his leadership behavior in his past minority governments leads many people, including me, to believe that he will not behave in this way. I sincerely hope that he does not use his “mandate” to pass legislation that reflects a minority moral view. I am worried that he will.

The reason I’m worried is because this style of democratic “politicking” leads to deeply polarized differences within a society. The belief that it is “OK” to use political tactics to “get power” and then impose a “more superior view” of the needs of society upon the electorate is one that has gained a lot of currency among right-oriented politicians in North America in the last decades. It is leading to deep societal polarization in the United States. It has not yet in Canada. But it easily could.

Instead of an election which is based on principles, an election campaign run on the basis of successful political election tactics runs this deep risk. As the elected politicians put in play legislative action based on their “less than open public moral principles and values”, they create dramatically opposed responses in their society. The following table summarizes this response dynamic.

	Voted For
	Yes	No
Share Moral Values	Feel morally vindicated	Feel like they “missed” an opportunity
Do Not Share Moral Values	Feel betrayed by the politicians they voted for	Feel politicians are morally wrong

◦         For those people who share moral principles and values, there is a sense of vindication. They feel “you see we are morally right”.

◦         Those who share the moral values but did not vote for the elected politicians in power, feel “you are doing the right thing, even though you were not clever enough to make it clear to me that you were going to do this, implying that you may be less than trustworthy”.

◦         Those who do not share the moral values but voted for the politicians in power, feel a sense of being morally betrayed. “Politicians are untrustworthy morally.”

◦         Those who do not share the moral values and did not vote for the politicians, feel “you politicians and those who support you are morally wrong”.

Elected Majorities When the Party in Power Does Not Get a Majority of the Popular Vote

When the electoral mechanism in a society is such that it is possible to get a political majority without substantially more than 50% of the popular vote, these dynamics can be very real. When more than 50% of the electors fall in the three cells of this table with bold text, distrust of politicians is high and undermines democracy. I believe that to be the case in Canada today.

This is a serious long-term problem in a society. The only solution to it is to create an electoral system that moves beyond simple “first past” the post majority. Whatever this system may be, it must ensure that the majority party in power also gets a clear majority (something more than 60% – the higher the better) of the popular vote. When this is not the case, minority governments and coalitions between parties should be the norm since they clearly require “collaboration” and “comprise” to be effective.

The Problem Faced By the Liberals

My view of Mr. Michael Ignatieff is deeply tainted by the way he became leader of the Liberal party. In his publications and his statements, he tried to communicate his moral creed. But his effort was deeply undermined by the way he came into the leadership of the Liberal Party in the first place.

Rather than being elected inside the party, or having earned his political stripes through previous participation in Canadian politics and then rising to the leadership, he was the personally-selected leader of the Liberal party inner circle. I believe that this signifies a significant degree of contempt for the everyday elector by this party elite. Mr. Ignatieff’s willingness to accept party leadership without insisting upon a leadership convention was the beginning of the crushing defeat suffered by his party.

His party was soundly and deeply punished by the Electorate for presenting Canadians with this “against the democratic spirit” fait accompli. Although I believe the Liberal’s public campaign attempted to reach the level of principle, electors judged this effort to be based on tactical political foundations, which were the result of “inside the Liberal maneuverings between groups having loyalty to previous Liberal leaders”.

When at its best, election campaign dialogue between the parties congruently focuses on the difference in principles that will guide future legislative decision-making by the elected party. In the Liberal case, the failure to fundamentally respect the principles of democracy within their own party undermined the ability of Liberal party to appeal to Canadian voters on any level.

Is a “Vote Against” the Same Thing as a “Vote For”?

My view of Mr. Jack Layton is mixed. Although he personally ran a campaign which attempted to appeal to principals, I believe his election results are more the result of a “vote against” than a “vote for”. The fact that the NDP party ran relatively unknown individuals in a large number of Canadian ridings reflects their tactical approach to taking advantage of this “vote against” dynamic. These nominations were relatively last minute. They did not reflect a substantial effort to build support for these individuals in these ridings over the previous years. They were not the result of a long-term attempt to build a party vote based on an appeal to principles.

Whether or not the NDP repeats its performance in future elections will depend on two things.

◦         Can it move from being a party of “leader personality” to a party of “known principles”, through the work done by many credible local current (and future in ridings where they were not elected) members of the House of Commons?

◦         Second, if they succeed at this, will these principles appeal to an electorate when the “vote against” dynamic is much less intense.

Last night, the House of Common die was cast, at least for the next four years. We have a majority Conservative government, led by a deeply “my way is best” oriented leader. Many Canadians are gratified that we have moved beyond what they see as “the indecisiveness” of a minority government.

Minority Governments are Not Always a Bad Thing

I personally believe that minority governments are not a bad thing, particularly when elections are fought on tactics rather than principles. Minority governments limit the legislative ability of a political party that does not encourage its local candidates to be open about their personal moral and ethical codes. They limit the ability of such a party to impose their view of “what is right” on society. They are the perfect solution to the problem of tactically-run election campaigns.

The reason I’m disgruntled is because I believe this was largely an election of tactics, not principles. The limits that come with minority government are gone. I truly hope that we do not see four years of “mandate talk” justifying the imposition of a set of moral values that do not appeal to the majority of Canadians. If we do, I believe we will be living in a much more polarized, less collaborative, less cooperative society. I do not believe such polarization leads to the kind of difficult collaborative dialogue necessary to solve our long-term economic, ecological, and health care problems. That’s why I’m disgruntled with the results delivered by Canadian voters to their politicians last night.

My Disgruntlement Will Go Away If …

We fix the electoral mechanism. Engage in a process, which has the following steps.

◦         Start a dialogue of “electoral experts” drawn from a number of democracies which leads to a number (no more than 3) of “possible fixes” to the electoral system in Canada. Do some computer modeling which “simulates” what happens in each possibility under a few scenarios. Write a report which summarizes the results. Broadly distribute the report – schools, ‘think tanks”, political parties, public media, the Internet, business oriented and other interest groups, and so on.

◦         Start a broad societal dialogue on the results. Engage the members of the House of Commons to take it back to their ridings and the groups they interact with there. Use social media to engage the younger elements of our population. Ask the public media to discuss the results broadly. Ask provincial politicians to get involved in this dialogue.

Manage this process through a “Guiding Board” drawn from society at large (public figures, educators, business leaders, … ) but EXCLUDE current or former politicians, and people who have demonstrated their support for one party or another through their public actions. Summarize this dialogue in a report that receives wide distribution through the public media, political parties, and the Internet. Finalize the “two or three” fix possibilities” in this report. Computer model the candidates under several scenarios.

◦         Run a referendum election that is totally separated from a political election that implements one of the two or three final “fix” possibilities that come out of this process. Treat it like a “non-party” election. Spend the millions needed to do this. It is a sound investment in the future of our society.

◦         Implement the results (without political party tinkering) in legislation at least the national, and hopefully, the provincial level, before the next election.

This may be too much to ask for, but I think that it is time to align our election mechanism with the changing nature and needs of our society. Expecting politicians to do more than initiate the process asks them to be “more than human” in that we are asking them to do things that could impact their lives and livelihoods. So let’s just get them to initiate the process. That would be a great gift that they could leave to future Canadian generations.

You Can’t Manage What You Can’t Measure – More From the C-Level Consultants Discussion on Linked In

Incorporating Management Measurements into Managed Work Flow

Let’s take the point of view of an innovative manager. I have a bunch of software in place in my organization that manages workflow. That is, for transaction-based events that must be handled inside the organization, we developed piece of software which routes activities from person-to-person based on the contents of the previous event. Data or documents flow along this this workflow as appropriate. Scheduling events allow individuals to assign pieces of work to either the next available person in a role, or to specific individuals. Decision events route the work down one sub path or another. Essentially this is a managed workflow. With some thought and care it can be implemented in a variety of ERP or other packages.

Now let’s add a measurement component.First, let’s lay out some some basic principles or values on which we want to base our measurements.

1. Not every occurrence of an event in the workflow will take the same time. Some will take longer than others on both the actual time put in any calendar elapsed basis. This will be a function of both the content of each actual occurrence of the event, and on outside events (e.g. vacations).

2. Individuals who do a particular event in the workflow are the best judge of how long a particular occurrence should take based on the knowledge they bring to the doing of the event.

3. The point is to provide feedback which helps them complete the task, as well as aggregated measures which help management decide if intervention of some kind is necessary either with an individual(e.g. coaching) or with the structure of the work flow itself.

So how would you do that? Remember you can’t manage what you can’t measure. What do you can measure here? And how would you do that in a way that is not obnoxious and over rigid, but still respects the capability of the individuals doing the work during the particular events in the workflow.

Here is how I would do it.

1. Add a component to the software which measures the elapsed calendar time between the initiation of an event in the completion of that event. That’s reasonably easy to do.

2. Store this information in a database.3. Provide periodic reports to the individuals who complete events in the workflow which show:

a. Their distribution of completion times,

b. as compared to the average distribution of completion times for all of the people who do this event,

c. as compared to the normal curve.

Why provide these three levels of feedback in this way?

1. It respects the fact that many things can affect the completion of a particular instance of the event – some of which may be beyond the control of the person completing it.

2. It provides individual with feedback that compares their distribution of completion times against the average distribution of completion times. It provides them with direct information about their level of performance, not subjective judgments by others.

3. It provides a norm, a normal distribution, which says that management expects variation in completion times. We are not just providing you with this feedback to try to drive you into completing events in the shortest time possible.

So, if we implement this we have a very sophisticated measure and manage system which is really not beyond the capacity of much of the software we have today.

The point I’m making here is that it’s not just about what we can measure and not measure, but also about the values we bring into the process of implementing measures in a management context.

I built primitive versions of feedback mechanisms like this and have been deeply impressed by the willingness of the people handling the events in the workflow to take this feedback and find ways to improve the quality of what they do.

The Great Pension Scandal: A Moral Fable

The Great Pension Scandal: A Moral Fable

Let’s listen into the dialogue between an employer (E) and a new employee (N) somewhere in North America, sometime after the Second World War.

E: Great, you will be starting work with us on Monday.
N: Yes, I’m looking forward to it.
E: OK. We’ve got your benefits out of the way but now we have to think about your pension. Here is the deal. You put in 5% of your salary. We will match it. Because we know that people are too busy to do a very good job of managing their pension investments, we will put these funds into the company pension plan for you and we will manage it. That way you can be sure that what you need will be there for you when you retire.
N: Let me see if I understand this correctly. Instead of giving me 10% more in salary, you are going to hold it back. In effect, you’re paying me 10% less than you would have. Instead, you’ll invest this in a pension plan program for me, so that I’ll have a clearly defined set of pension benefits when I retire.
E: You’ve got it. Although we don’t think of it as deferred income. Instead, we think of it as the company putting company funds into your pension plan. We know that we are really better at managing long-term investment plans than individuals. Therefore, we just think of this as another company asset that we are managing for you in the long run.
N: OK. If that’s what it takes to get the job, I’ll go along.

Shared “Myths” and “Social Contract” Behind Pensions

This dialogue sets out the pension component of the employment contract that generations of employees have entered into since the Second World War. Broadly accepted by employers, employees, and politicians, these employment contracts really became a “social contract” that shaped the lives of millions of individuals and families. When it worked, it provided financial stability in the later years. When it didn’t, it created hardship for individuals and families.

The word “scandal” reflects the fact that this social contract is logically based on the idea of “personal income”. No matter how you try to make this situation “nice” or “legal”, the reality is that pension plan contributions are income that was paid to employees. The whole legal debate about who owes the “surplus” in pension plans that occurred in the 1990’s completely missed this fact. Pension plans contributions were and are listed as “deductions” from individual income in most organizations. The legalities of the various pension plan contracts crafted by organizations cannot escape this fundamental fact. Legal niceties have often hidden such fundamental moral realities in the endless arguments framed by careful and thoughtful lawyers who are paid to favor one side over another.

Unfortunately, these employment contracts, and the resulting social contract that evolved from them, are based on a number of commonly accepted beliefs that have not held up over time.

1. Individuals were taking “life long” jobs. Careers progressed within the boundaries of a single-employer. People would retire from the first (or at least, an early) employer they joined in their careers. In many cases, they did. This employment pattern started to break down in the last decades of the 20th century.
2. Organizations last a “long time” – over 50 years. Unfortunately, as research has shown, most public and private corporations simply do not have life spans that last this long.Many of the largest corporations in the Fortune 2000 simply disappear as visible entities. In fact, the only employer with some guarantee of this kind of life span tends to to be the government.
3. Organizations are led by individuals who have a sense of responsibility for the welfare of their employees.This “paternalistic” mindset became less and less common as the decades since the Second Work War progressed. It was associated with a form of “male”: and “employee” chauvinism that has been undermined by the social movements of unionism, feminism, and anti-racism.
4. Most individuals are not capable of managing their financial affairs in a way that ensures that they will save for the “later years”. The complexities of investment and the stock market require special expertise and ability. An organization’s leaders are more capable of identifying this kind of expertise than the average individual. Therefore, it made sense for the organization to “own” the pension assets, and manage investments for employees.
5. Defined benefit plans made long-term sense. Shortfalls from investments will always be made up by the future contributions of future employees. Somehow, their numbers would always be large enough, and the investment wisdom of pension plan managers would always be great enough, to support defined benefit pension plans 10, 20, 30, 40, and 50 years into the future.

Unrealistic Beliefs

Today, we know that these beliefs were really a form of social elitism. This social elitism still exists today, even in the face of events that have shown its shortcomings. The upper cadre in organizations still believes that they were more capable than the majority of their employees to make long-term decisions. Specialized “pension managers” still believe that they are more capable of investing pension income and ensuring that adequate amounts would be available to pay out defined benefit pensions to individuals 10, 20, 30, 40, and 50 years into the future.

Throughout the second half of the 20th Century, the political elite, closely connected to the organizational elite, shared these beliefs. They created legal frameworks governing pensions that treated pension funds as assets of organizations. Deferred income belonging to employees became regarded as an asset on an organization’s balance sheet.

During the later decades of the 20th century, as government started to realize that there was a “pension” problem, and used tax-based incentives to encourage individuals to “save” additional funds through RRSPs (Canada) and 401K plans (US), these beliefs shaped the legislation which regulated private pension plan industry as well.

When organizations face financial difficulties, pension assets, just like any other asset on the balance sheet, are used to “deal” with the claims of the organization’s creditors. Pensioners are the creditors of last resort. All other creditors have a prior claim to the organization’s assets. Somehow, the fact that pension funds were really deferred income that logically belonged to the employees got lost in the social elite’s paternalistic approach to pension plan management. Corporations set up to manage “additional” savings (e.g. RRSP or 401K) savings are treated in the same way. Other creditors come first when they run into financial difficulty.

Government-based pension plans were created as a pension of “last resort” to cover these gaps. Unfortunately, the managers of these government plans also believed in their ability to predict long-term financial trends. Time has made abundantly clear that all pension managers’ – corporate and government – belief in their own abilities substantially over-estimate their actual long-term financial and investment management performance. Government pension plans, both for government employees and for other members of society, are also facing a severe underfunding crisis.

The beliefs of the social and political elite that underlie pension plan management were and are unrealistic. They reflect an “over optimistic” view of “themselves” shared by the organizational and political elite in society. Pension benefits for current and former employees / contributors have disappeared, and will continue to disappear, within a pension regulatory regime based on these beliefs.

An Impending Pension Disaster

At the end of the first decade of the 21st century, dialogue about an impending pension plan disaster fueled both political debate and pundit commentary. However, very little of this commentary looks back to the social conditions which created the crisis. Few of the reforms proposed address the underlying moral scandal that led to crisis. This scandal, and the proposed attempts to mitigate it, continues to refuse to recognize a number of simple fundamental truths.

1. Pension assets do not belong to the organizations that manage them, whether they are private corporations or specialty organizations created to manage these funds. They belong to the individuals whose deferred income or chosen contributions fund them. This deferred income and chosen contributions, and the return, good or bad on the investment of these funds, make up the assets of all pension funds. Pension fund managers are stewards of others’ assets. They have no “right” to these assets.

2. Pension assets belong to individuals as individuals, not to the the collective group who, at any point in time, might be entitled to benefits from a pension plan. Organizations which offer pension plan saving services today recognize this. Individuals can choose to place some part of their income in such plans. Logically, such individual choices are no different from the implicit choice individuals make to place some part of their income into a pension plan on accepting an offer of employment.

3. Pension plan managers, whether working for an organization that employs individuals or for an organization offering a pension plan management service to individuals, are stewards of others’ assets. As a result, they cannot claim any right of confidentiality with respect to their activities as they steward those assets. Freedom of information about their activities – all of their activities – is simply a right which goes with the fact that individuals own the assets in a pension plan. The idea that such stewardship groups or organizations are somehow like private corporations, and entitled to privacy about their internal activities, simply does not hold.

4. Management teams make decisions that balance between the very short and the foreseeable future. Generally, this means that they make decisions which choose between immediate benefits (this year and next) and benefits attainable in the foreseeable future (3 to 5 years).

Pension plans require that individuals look 10, 20, 30, 40, and 50 years ahead. That is almost impossible, given the nature of human ability. Very few people can accurately see what will happen in our global society 50 years ahead. Those that do tend to focus on broad trends, e.g. the environment. They do not often make judgments about specific investment choices that need to generate a return adequate to fund pension obligations 10, 20, 30, 40 and 50 years into the future. Consequently, pension managers need to be responsive to a form of governance which is very different from that applied to either profit or not-for-profit corporations.

Corrective Responsibilities and Actions

Today, we as a society have to deal with the results of our past actions. We cannot escape the fact that our shared beliefs, and the natural collusion between organizational and political elites, created a current problem. We can also not avoid moral components of our current pension dilemma. The corrective action must go back to basics. Saving for pensions is done out of the income of individuals. Consequently, they own the those savings, and the results that come about from the management of those savings, no matter who does this.

Fixing the current pension problem will not be easy. It will take careful thought and open dialogue at all levels of our society. It will will need to go beyond the ideas that follow. However, we must start. Tinkering with the existing pension plan system will not work. We must address some of the fundamental underlying beliefs that created this crisis in the first place.

1. Politicians must immediately pass legislation that recognizes that pensions belong to individuals not to organizations, whether they are employers or pension savings service management corporations offering to manage pension related savings.

Consequences:

 Pensions become “creditor” of first resort, not last resort when these organizations fail financially.

 The pension savings management industry will develop ways to facilitate the “movement” of individuals’ pensions as they compete for this service business.

 Organizations doing business with pension savings management companies, recognizing that they will be “creditors” of last resort, will rapidly “sharpen” their evaluation of these firms and only do business with the ones most likely to last and survive.

 Financial corporations (e.g. banks and insurance companies) offering “pension savings management” services will need to take steps to “isolate” this part of their business from the other “financial risks” that apply to their balance sheets.

 Employing organizations that manage “company pension plans” will take steps to “isolate” these assets from the other parts of their business.

 All of the internal information created by these pension management service firms will be “publicly” available, since the companies doing this service are “stewards”, not owners of anything. This will “speed” up the spread of best practices in the industry, and reward the “best stewards”.

 Over time, individuals will be able to migrate their pension savings to the “best performing” pension savings management organizations.

2. Politicians must create a regulatory scheme for pension savings management organizations that focuses on “adequacy” to meet future obligations, not past’s year’s return on investment.

Consequences:

 Pension management service groups, even if they exist within the framework of employing organizations, must be structured as “not-for-profit” organizations that are accountable to the individuals who ultimately own the funds which fuel them. That does not mean that pension plan managers cannot earn “individual incomes” based on their activity. It does mean that such managers cannot use the “structure” of private or public corporations, or the laws relating to them, to reduce their fundamental need to be accountable to the owners of these funds. It also means that they cannot use existing corporate law to reduce their need to be totally transparent in their activities to such owners.

 Pension savings management firms will need to develop complex predictive models that relate their funds under management to the “payouts” they expect to make to their funders 10, 20, 30, 40 and 50 years in the future. These models will need to take into account the “age distribution” of their funders, as well as their understanding of the likely investment performance of their funds under management. The year-over-year success or failure of their predictions will become the basis of their “competition” for contributors’ funds, not backward looking past investment histories. This has two profound implications. First, long-term investment strategists will be attracted to such firms. Second, over time, better and better prediction models will be developed, which will help regulate this industry in its true time frame (10, 20, 30, 40, and 50 years into the future).

 The government regulatory agency, which oversees this industry, will have to develop “extraordinary skill” at this kind of predictive modeling. It will be able to do so, based on the fact, that the internal details of these models will be publicly available.

3. Politicians must pass legislation that requires individuals who earn above a certain income level annually (say 50% of the national average) to contribute a minimum part of their income (say 10%) to a pension savings management organization.

Consequences:

 Working out the details of how to do this, and how to move the funds from employers to these organizations, will require careful thought. Surely, a society capable of the electronic banking and fund management we have today can find ways of doing this effectively.

 Individuals can always save more if they chose to do so.

4. No pension income that is less that the average annual income in a society should be subject to income tax.

People made their income-based contribution to society during their earning years. Once they are living off “pension” income, whether they receive it from the government, or a pension income management organization, a certain portion of it should be sheltered from income tax.

Consequences:

 People living on “minimum” pensions today would receive an immediate boast in “income”.

 When combined with other social support mechanisms, e.g. income supplement for the “poorest” seniors, society will deal responsibly with the problems created by the “myths” underlying pension management in the past.

Being Part of a Society is Making Moral Choices

Pension savings dynamics and schemes are part of the social framework that makes up modern society. Like all the components of such frameworks, they are not “true” or “factual” in the same way as facts about the material world. They are part of the way that we build “ways” of being together in “society”. As such, they have moral and ethical components which cannot escape logical argument and reasoned debate. They need constant review in the light of changing social dynamics. They also need open dialogue through which each person in a democratic society has the right to make themselves heard.

“A Measure What You Manage” System that Works

Sandy Pentland’s book “Honest Signals” ( http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=11532 ) makes it clear how much our evolved internal psycho-dynamics are still functioning as if we were living in tribal and other “survival” situations.

I personally think that management has to “consciously” work with and “against” our evolved interpersonal judgment mechanisms. I believe that this has deep application in recruiting and in performance management.

Our evolved psycho-dynamics precondition us to “rapid judgment of others” and to “action”. That made sense in a tribal, hunter-gatherer world, where meeting a new person required “instant” assessments and “flight / fight” reactions. It does not in modern society, and certainly not in modern management.

Performance management in organization must move us beyond the inappropriate use of our evolved human “natural” abilities. Our performance management processes must meet the requirement of managing complex organizations and technologies that populate our world. (The subject of my last blog.)

But we can move even further down this path. I once worked for a CEO who said three things.

“1. I need to get the folks who work for me thinking about the same things that I am. I need a way to convey that to them without having to tell them in talk all the time.

2. What counts is not the past. Explanations about the past don’t help me any. What counts is commitment on the part of the folks working for me  to doing something which changes non-positive trends – trends starting in the past that will continue to happen if my people don’t do something to keep these trends from continuing to happen.

3. The numbers which are important to me today are not the numbers which may be important to me 6 months from now. Sure, some numbers are perpetually important, but I need others as I and my folks do things to manage and to change the business and make it better.”

He said these things to an innovative systems chap who happened to be a physicist working for his organization as a lead business application designer. That chap said:

“I don’t understand management. It is like a big cloud bubble chamber experiment in particle physics to me. You get all kinds of data and the best that you can do is look for patterns which you think explains some things.”

This systems chap worked with the CEO to implement a “measurement system” that was based on the following ideas and principles.

1. Each person can only get as many numbers from the “system” as will fit on one 8/2 by 11 inch page.

2. You can only get numbers that already exist in one of the transaction processing business systems that are already used to run the business. If you want new numbers, you can only get them through the process of improving the functioning of these systems.

3. All the numbers that are available are listed in a data catalog which the system made available to each individual executive. (Getting this data catalog up and maintaining was a real “roll up your shelves and catalog” effort in meta-data management.

4. Librarians and public relations people provided input on how to “structure” the presentation of this data catalog to executives so that they would find it “user friendly”, and could navigate through it in ways that made sense to them, not systems analysts.

5. Each executive could pick the numbers they wanted to see. They would get a personalized report of their numbers every day, even though not all the numbers changed every day. Changed numbers were highlighted. Individuals could request supporting graphs showing the historical patterns of any of the numbers on their personalized report. These “supporting” graphs also showed the trend lines that were being used to predict the “at year end” projections of these numbers. (See point 8 below.)

6. An individual’s immediate reports would get a copy of that executive’s personalized report at the same time that the individual got the report. Usually, they were delivered to all of these folks in-boxes at the same time. That meant that people in the top three or four ranks of this company got the following each day.

• A copy of their boss’s personalized report.
• Their own personalized report.
• Any support “graphs” of any numbers on their personalized report they had requested. Everything was always printed out on 8½ by 11 inch paper.

7. Executives did not have to explain their choice of numbers to their bosses.

The physicist-systems chap trained in physics believed that management was a process that depended a great deal on individual intuition and experience. He did not understand management. He believed that many executives did not either. He thought that executives often acted on “intuitions” that were beyond rational explanation before the fact. He did feel that he should in any way interfere with their personalized approaches to the “bubble chamber” experiment called management.

The CEO thought his job was to get his folks to produce results, not do this in ways that reflected his own approach to problems.

This combination of beliefs was extremely important in setting up this system. I believe that it was also key to its success.

8. Once an executive asked for a number in the data catalog, that person would get the following versions of that number:

• Actual to date
• Budgeted ( if available),

and

• Projected to year end.

These projections were based on estimating systems that the physicist developed for each of the entries in the data catalogue. The physicist and his system team developed statistical processes which they used to project these numbers. These process were based on “curve fitting” technologies, as well as dialogue with folks responsible for operating the source transaction processing systems about the nature of each of these numbers.

This team regularly reviewed the success of their projection routine by comparing their projections against actual numbers as they became available. As they learned to from these regular comparisons, they updated these prediction- to-year-end mechanisms.

Regular updates to the data catalog communicated the results of this assessment and updating process. This also quelled the inevitable debate about “how to predict” among the executives.

9. Each number in the data catalog was classified as either an output number the result of effort put in) or an input number (some kind of effort put in to produce some output). The data catalog preparation team based this on dialogue with the individuals responsible for the source transaction processing business applications.

Although there was a little bit of flurry among the executives about this classification in the beginning, it rapidly settled down, once the daily reports started going out.

It took the best part of a year for this “measure what we manage” system or application to settle in. The CEO’s sponsorship of it was extremely important in its initial “acceptance”, even if this acceptance was less than enthusiastic on the part of some of the executive team.

The system really took off when the CEO insisted that his report consist entirely of ratios – of outputs over inputs. He explained his reasoning for his choice for this in his personalized report. The first part of it simply reflected long term ratios that he considered important to his understanding of the up and the downs of the business They were stable.

The second part of his personal report he regarded as “experimental”. He chose ratios for it that reflected his current attempt to delve deeper into the dynamics in the business that he thought could be improved or were changing. They were his way of gaining insight into some of the dynamics of the business about which he had preliminary, unconfirmed hunches.

Others in the executive group started to experiment with similar approaches on their personalized reports. Again, they never had to explain their choices to anyone other than their direct reports. Before long, the personalized reports of the top 1 or 2 ranks of the executive group consisted almost entirely or ratios.

Again and again, the CEO in this organization emphasized what he wanted to hear from folks when things were considered less than positive. He asked them to tell him what they were going to do to attempt to change that, not provide explanations about the past. He considered simple focus on understanding the past as a form of “analysis paralysis”. He wanted such “insight” linked to actions they were taking to change the projected trends in raw numbers being taken from the transaction processing systems used to run the business.

As the CEO changed the some of the ratios that made up his personalized report, this reports able to follow the things he was concerned about in the business. Often, these changes were based on intuitions or hunches or curiosities he had. They did not always make sense. They did not always provide “useful” information after a couple of days or weeks. He simply dropped them when he die not find them helpful to him, and replaced them with other things which intrigued him. As his direct reports followed these changes, they “started to read his mind more accurately’, based on following the patterns of his changes in his personalized report.

The projections-to-year end focused people lower down in the executive ranks, who often did not interact with the CEO on a day-to-day, basis on doing things rather than explaining things. The culture became less concerned about blame and more focused on doing. Over time, the executive ranks “got” that not doing something about a “downward productivity” trend was the real thing for which they got into trouble with their bosses.

In some cases, an individual executive’s dis-satisfaction with the quality of some of the ratios on a personalized reports led to that executive taking an interest in the source transaction processing business application and requesting upgrades to it. Over a number of years, there was a commonly noticed improvement in the quality of both operational and customer facing transaction processing applications.

This system became known as the “management daily”. The CEO attributed a year-over-year annual 10% increase in the operational productivity and profitability of his organization for the period that he was CEO directly to the “management daily”. He claimed that it created an “cascading alignment of thinking and concern” in the executive ranks of the organization – a pulling towards constant productive improvement that he had never experienced before.

To me, this is a “you can’t manage what you don’t measure” system which makes sense for an organization.

1. It respects the fact that individual executives have different insights and intuitions about what is important in management.

2. It encourages dialogue between an executive and his or her immediate reports. At the same time, it allows these immediate reports to shape a different kind of dialogue with their own immediate reports.

3. It insists that the numbers – the measures – come from the transaction processing systems used operate the organization.

4. It builds feedback loops from the management team back to these transaction processing systems.

No additional measurement effort, other than the collation and reporting system itself, is required to generate numbers. The transaction processing systems can be used to handle internal operational activities or be used to manage customer centric ones.

5. It follows change over time, as the management team makes change to improve the organization.

6. It focuses management dialogue on the future, and on acting to change the future, not explaining the past.

7. It focuses management dialogue on productivity, on outputs over input, where it should be, and on trends in productivity, not point in time measures.

This point in time focus is one of the weaknesses of many external investment analysts who focus on quarter by quarter results. Their time frame is simply too limited to truly “get” what is happening inside an organization.

Some of the features of this “management daily system” have found their way the balance scorecard systems. Unfortunately, I believe that in many cases balance scorecard implementations have lost two of the great strengths of this management daily system.

• First, balanced scorecards are often static – reflecting one individual’s point of view about what counts, or a consensus of individuals ‘view about what’s important at a certain point in time. Balanced scorecards may include ratios, but they often lack the “experimental component” of the management daily. They are not “personalized” to each executive like the management daily

• Second, balanced scorecard systems seldom implement the projection element of the management daily system. The lack the “learning element” – comparing projections against actuals – which the physicist-systems chap implemented in the management daily. As a result, balanced scorecards often become systems which focus executives on explaining the past rather than achieving value results in the future.

Link such a “management daily “measure what you manage” system to appropriate performance management incentive schemes. Let the incentives consist of a thoughtful mixture of individual, business area team and organization wide incentives. Get this linkage right, and you create the environment needed to focus people on creating extraordinary organizational excellence.

I have implemented “management daily or weekly” approaches in each organization unit that I have managed since my exposure to this organization. It has been relatively straight forward to set up the necessary data extract and numbers processing systems, given the advances in business intelligence and business analytic software.

In each case, I have been deeply impressed by the change in thinking that resulted in my direct reports. They became future action oriented, rather than past explanation bound. We achieved significantly enhanced performance results as a team, and as individuals. This is a form of “measure what you manage” that works.