Organizational Leadership

October 13, 2019

The Innovation Equation – Modelling Corporate Structure and Innovation

The March – April 2019 edition of the Harvard Business Review contains a short article entitled “The Innovation Equation” By Safi Bahcall, in which he tries to explain how it isn’t only culture that can change a company’s willingness to innovate, but also how the incentives within the company change as it grows.

Bahcall notes that many companies like GE, Nokia, RIM (Blackberry) went from being known as being extremely innovative and fun to, well, not. He sought to create a model that would explain how companies like these could so quickly shift from nurturing “crazy” projects – the “loonshots” that transform industries – to rejecting important innovations. In his search to explain this phenomena, he began to realize that it seemed to mimic the kinds of phase transitions that are seen in chemistry and materials science, wherein a sudden change occurs in the collective behavior of the many interacting parts of a system. In water this occurs at it’s freezing point.

In the Innovation Equation Bahcall shows that there is a certain size “at which human groups shift from embracing radical ideas to squashing them,” he calls this the number M. This number M, the number of people at which a corporate innovation phase transition occurs,is not fixed, but is a function of two competing forces: stake in outcome, and the perks of rank.

The numerator of this equation, the stake in outcome, encompasses Equity Fraction, E, Fitness Ratio, F, and Management Span, S. The perks of rank are largely modeled by Salary Growth, G. When put all together, as E, F, and S are increased so too does the number of people at which a transition occurs. When G is increased the number of people required for a transition decreases, as shown below.

The author uses the following example to illustrate what is being modelled: “Imagine that you’re a designer at a medical device company, and your job is to develop a better pacemaker. It’s 4 PM, and you need to decide how you’ll spend the final hour of the workday. Should you experiment a little more with your design, or should you use the time to network, currying favor with your boss or other influential managers? In other words, should you focus on project work or politics? Such daily choices, faced by pacemaker designers and midlevel workers of all kinds, are what really determine the level of innovation at a company – not cultural changes instituted from the top.

Bellow is a graphical illustration of equation 1, where it can be seen that Equity Fraction, Fitness Ratio and Management Span all drain into M, thereby increasing it, while Salary Growth takes away from M, thereby reducing it.

Equity Fraction, E

Equity fraction represents the extent to which incentives reflect the outcome of projects as opposed to rank within the organization. Equity fraction directly ties your pay to the quality of your work. Equity comes in two forms however, hard and soft. Hard equity is made up by stock options, grants, commissions, bonuses, etc. Soft equity on the other hand is made up by non-financial benefits, such as peer recognition. Relating back to the pacemaker example, regardless of the type of equity, if E is higher it is more likely that designer will spend the extra hour on project work and not politics.

Fitness Ratio, F

Fitness ratio describes the fractional relationship between project-skill fit (PSF) and return on politics (ROP): F = PSF / ROP.
Project skill fit measures the rewards from investing time in your project, whereas return on politics measures the reward from politicking.

If, for example, there is an excellent fit between one’s skills and their project, they would have a very high PSF and they are more likely to spend more time working on it. Ultimately, if this is the case, there would be no need for schmoozing with others, your skilled work would speak for itself. If, however, you are not well suited to the project that has been assigned to you, you would have a low PSF, and the incremental amount of time spent with your project wouldn’t matter much; it would make more sense for you to invest your last hour of the day in politics as it might be the best, or only, way for you to win a promotion. It should be noted that an overmatch of skills an also result in a low PSF. Imagine a very skilled person who is an expert in their field constantly given junior level tasks. They would likely become bored, not interested in doing their work, and would then become more interested in politicking.

The denominator above, the return on politics, is a difficult to measure parameter that all individuals feel. It’s the extent to which lobbying, networking and self-promotion affect promotion decisions. Bahcall uses the following example to illustrate how the ROP may be limited within a company: “Consider two global manufacturers, company A and company B. Each has a California office with three vice presidents and 30 product designers. In both firms, a spot opens for a fourth VP; one of the 30 designers will be selected. Company A is like most firms: the local office will decide who gets promoted. Through the decision making process – which will take nearly a year – those 30 designers will compete to curry favor with the VPs. The return on politics is high. At company B, however, an independent evaluator who has no ties to anyone in the California office will conduct an assessment and present the findings to an independent group of executives who will make the decision. Since there’s little benefit to lobbying, designers at company B will be likely to focus on their projects and on collaborating well. The return on politics is much lower.“

Management Span, S

Management span, also known as span of control, refers to the average number of direct reports that executives in a company have. If a company has a narrow span, and therefore managers have few direct reports, there are many layers to the company’s organizational structure, and promotions are on everyone’s minds. As a result, researchers are going to be more tempted to worry about titles and status than on actual problem solving. If, however, a company has a relatively large span, each manager has many direct reports, which results in few layers to an organizational structure, promotions won’t be on people’s minds as they rarely occur. This results in people focusing more on their work and less on politicking. Bahcall notes that narrow spans are generally better if you want low error rates and high operational excellence, whereas wider spans and looser controls are better for experimenting and developing new technologies.

Salary Growth, G

Salary growth characterizes the average step-up in base salary, and other perks, that employees receive as they ascend the corporate ladder. For example, if every step up the ladder also came with a 200% increase in salary, you’d try your hardest to make sure that every influential person knew exactly who you were. On the other hand, if each step was accompanied by only a 2% increase in salary, people wouldn’t really care too much.

Low salary step-up rates encourage people to use the last hour of the day on work, not on politicking. One recent academic study even went as far to conclude that “increased [wage] dispersion is associated with lower productivity, less cooperation, and increased turnover.”

What Should You Do?

In order to adjust the control parameters to increase M and enhance innovation Bahcall suggests trying a few different things:

Celebrate results, not rank. To increase the equity fraction and lower the salary growth rate, management must structure rewards to be based more on results than on level in the hierarchy.

Use soft equity. As I talked about in my post about The Five Love Languages, people are motivated by different things, and feel different emotional responses than others to the same experience. Some people may be more motivated by tangible financial rewards. Others may be more driven by peer recognition, or a sense of accomplishment and personal growth. Companies should try their hardest to identify and use all motivational means at their disposal.

Take politics out of the equation. Employees need to see that lobbying for pay and promotions will not help them. “When promotions are considered at McKinsey, for example, a partner from a different office and preferably a different functional practice interviews candidates colleagues and clients and then reports back to a group of partners who make a decision.”

Invest in training.

Perfect employee placement. Designate a person or team to regularly monitor the organization for good skill fit.

Fine tune your management span.

Appoint a chief incentive officer. “Organizations need top-level executives who are well trained in the subtleties of aligning incentives and solely focused on achieving a state-of-the-art compensation system. A good incentives officer can identify wasteful bonuses, reduce the risk of perverse incentives, and tap into the power of nonfinancial rewards. The goal of achieving the most motivated employees for a given compensation budget is as important and strategic to companies as is the goal of achieving the best sales for a given marketing budget (the province of a chief revenue officer) or the best T systems for a given technology budget (a chief information officer’s terrain).”

“Culture still matters, of course, but it’s time to pay a little more attention to structure.”

October 12, 2019

The Importance of Coaches

The importance of coaches, outside of athletic endeavors, was first brought to my attention by someone discussing the article Personal Best by Atul Gawande in the October 2011 issue of The New Yorker’s Annals of Medicine. And it makes sense, right? Athletes, singers, performers of all kinds, have coaches monitoring their every move and providing feedback to further fine tune their behaviors, so why shouldn’t this also be a useful tool in the work place, or even in your interpersonal life?

The trap many people fall into is that they are under the impression that they are able to adequately assess their own actions. They are the ones who know themselves the beset, after all. But, the issue here is that our perceptions are not objective, they are distorted by many things, and in the case of athletics, our sense of proprioception is never going to as good as another set of skilled, watchful eyes.

Take for example my more recent foray into superbike racing. I’ve been riding motorcycles nearly all my life, and finally took the leap to begin road racing. As anyone who has ever watched roadracing knows, the coolest thing you can do is drag knee through a corner. I mean, look at how awesome Marc Marquez looks doing this:

Now, when I started my coaching sessions, I knew I was so close to dragging knee… Until I got my coaches feedback and they showed me pictures of myself.

What the hell, I thought. I knew I was so close to dragging body parts on the race track. I could tell I was hanging off the bike so far, I was going so fast. Well, my perception of what was actually happening was far from the objective truth of it. And this is where some people have a very difficult time with things. They come into a situation and fall into one of the biggest traps someone can fall into, regardless of if they’re new or an elite level athlete: they aren’t coachable. They think their perception of reality is the objective truth of it. They think the feedback they are getting is wrong.

Now, for the sake of saving face, I listened to my coaches and got there. I mean, look at how cool I look.

Why This Matters Beyond Athletics

Ultimately, coaching helps to strengthen our self-awareness, emotional or otherwise. We may think we are doing something, whether it’s cornering effectively in motorcycle road racing, or responding adequately to an emotionally charged or difficult conversation in the workplace, but if we are only relying on our own perception of it, we are probably pretty far from the objective truth of the matter.

If we proceed day in and day out by assuming that our interpretations of things are correct,without ever checking that assumption, we will continue to reinforce behaviors based on these perceptions (or inputs). But what if these are wrong? Well, we will begin developing behaviors that are at best much less effective than they could be, and at worst completely inappropriate to the situation.

In Personal Best, Atul Gawande talks about how this has related to his performance as a surgeon. In his earlier years he improved every year, ultimately performing much better than national averages. That is, until one day he plateaued. Gawande recalls being at a medical conference and searching for an impromptu tennis match, having been a very competitive player in high school that took particular prided his serve. During the match, the other player, who played in college, mentioned “you know, you could get more power from your serve.”

He realized that what he thought he was doing, was not in fact what he was actually doing. He gradually realized his legs weren’t really underneath him when we swung his racket up into the air. His right leg dragged a few inches behind his body. With these realizations, and a bit of practice, his serve was drastically improved.

What Is a Coach, Anyway?

The concept of a coach is somewhat difficult to define. They teach, but they are not teachers. They can be bossy, but they’re not really your boss. In fact, they don’t even have to be good at what they’re coaching, they just have to be knowledgeable about it. Coaches simply observe, make a judgement about what they see based on their knowledge of the subject, and then guide.

As Gawande mentions, the coaching model is distinct from the traditional concept of pedagogy; in the latter there’s a presumption that the student will no longer need instruction. You get to a certain point and you’re done. You know everything there is to know. But how does this “being done” notion work in a world where things are always changing, techniques evolve, etc? In my mind, it fails many people.

The model for coaching, as opposed to pedagogy, is different in that it considers the latter naive about our human capacity for self-perfection. It firmly states that no matter how well prepared someone may have been at one point in time, nearly no one can actually maintain their best performance on their own.

Utilizing a Coach

Gawande inquires about the lack of coaching in classical performing arts with Julliard graduate and violin virtuoso Itzhak Perlman only to find out that, in a sense, he actually had a coach. Gawande asked “Why concert violinists didn’t have coaches, the way top athletes did. He (Perlman) said that he didn’t know but that it had always seemed a mistake to him. He had enjoyed the services of a coach all along.” Perlman indicated that he felt incredibly lucky to have met his wife, who was also a concert-level violinist, whom he’d relied on for feedback for the last 40 years. According to Perlman, “The great challenge in performing is listening to yourself. Your physicality, the sensation that you have as you play the violin, interferes with your accuracy of listening. What violinists perceive is often quite different from what audiences perceive. My wife always says that I don’t really know how I play. She is an extra ear… She is very tough, and that’s what I like about it.” Perlman’s wife, all along, had been next to him telling him if a passage was too fast, or too tight, or too mechanical, or any other myriad things that needed fixing.

California researchers in the early 80’s conducted a five year study of teacher-skill development in schools and noticed that when teachers only attended workshops new skill adoption rates were approximately ten percent, but when coaching was introduced, adoption rates passed 90 percent.

Good coaches know how to dissect a performance into its constituent components. They remove little items from the complex behaviors, bring them to the forefront to be thought about, practiced, and then insert them back in to the complex behavior. In sports, coaches focus on mechanics, conditioning, and strategy. In professional settings, and in particular in the classroom as Gawande illustrates, coaches do the same thing, but often focus on behaviors, attention span, and rates of learning.

Gawande decided to try to incorporate this concept of a coach into his operating room. He asked an accomplished surgeon to monitor him during one of his operations, one that he said couldn’t have gone better. Upon meeting with his coach afterward, who observed the entire operation, he was given many, albeit very minor, changes to incorporate. He was told to leave more room to the left which would have allowed the medical student to hold the retractor and free up the surgical assistant’s left hand. He was told to pay more attention to his elbows. He was told to think more about the positioning of the patient in comparison to everyone else, not just him. He was told a few times that he would have been more efficient, and therefore less tired, had he chosen a different instrument a couple of times, or changed his body positioning. Gawande stated “That one twenty minute discussion gave me more to consider and work on than I’d had in the past five years.”

When it comes down to it, all a coach does is monitor your inputs and outputs to a system, and provides a feedback mechanism to optimize the outputs. This often times means changing inputs, whether it’s the mechanics you’re using as an athlete, a particular teaching strategy you use as an instructor, or the manner in which you provide feedback to direct reports as a manager.

An Engineering Systems Example

Think about it like this: if the speedometer on your car is off by 20%, the speed you go when you set your cruise control will be wrong, even if you, and the car, both think it’s correct. Ultimately though, what you and your car think doesn’t matter as much as the objective reality of the situation when you get a speeding ticket. In this scenario the system is your car, including the cruise control, the input is your desired speed, and the output is the actual speed. The feedback by which the car is able to achieve this output speed is from some variety of wheel speed sensor or calibrated tachometer. The police officer is the coach.

In my motorcycle example above, the system is me and my motorcycle, the input is the lean angle and body position I want, and the output is the lean angle and body position that I’m achieving. My feedback mechanism is my internal proprioception. The coach is, well, my coach.

Some Final Thoughts

Coaching outside of athletics has become a bit of a fad over the last handful of years, but beware that bad coaching will make people worse. Coaches should foster an effective solution or change, not merely have you replicate a technique that they like. They should help you find what works for you, given that you and your situation are not just an exact duplicate of another thing like machines are.

October 12, 2019October 12, 2019

Emotional Intelligence Has More Facets Than Most People Think

In the February 2017 edition of the Harvard Business Review, Daniel Goleman and Richard Boyatzis wrote a short article entitled Emotional Intelligence has 12 Elements. Which do you need to work on? that I not only thought was interesting, but captured a lot of the misconceptions that I see about emotional intelligence.

They discuss a manager of a small team who is very well liked, kind, respectful, sensitive to the needs of others. She is always engaged and is a source of calm to her colleagues. She’s a good problem solver, and tends to see setbacks as opportunities. Despite her boss complimenting her on her high levels of EI, and her even considering EI as a strength of hers, she feels stuck in her career, unable to demonstrate the kind of performance her company is looking for. She thinks to herself so much for emotional intelligence.

The trap that she’s found herself, and her manager, in is that they are defining emotional intelligence much too narrowly. They’re thinking of emotional intelligence as only sociability, sensitivity and likability. They’re missing things that are important but overlooked by many: the ability to deliver difficult feedback to employees, the courage to ruffle feathers and drive change, and the creativity to think outside the box. These are examples of a case when someone has uneven emotional intelligence skills, or emotional competencies. Goleman states that people often have an imbalance in their EI skills, especially those that are viewed as having high EI, but having a well-balanced array of specific EI capabilities actually prepares a leader for exactly the kinds of tough challenges as those listed above.

There are a number of different models for the different aspects of EI, and even I have a different “5 Aspect” model shown above, but Goleman prefers to use a four domain, 12 aspect model as shown below.

Goleman and Boyatzis Emotional Intelligence Model

G and B, as I shall refer to them, prefer to use a model of emotional intelligence that utilizes the four domains of Self-awareness, self-management, social-awareness, and relationship management. Within these four domains they define twelve EI competencies that are learned and learnable capabilities that allow outstanding performance at work or as a leader. To relate back to their original example, our small-team manager is strong in empathy, positive outlook, and self-control, but she appears to be lacking in conflict management, influence, and inspirational leadership, which are skills that require just as much engagement with emotions as her strengths, and should be worked on just the same as other EI competencies.

If one has strength in conflict management they will be skilled in giving people unpleasant feedback. If one is more inclined to influence the group, they would also want to provide that difficult feedback as a way to lead her direct reports and help them grow.

The next example they give I love, and hope a friend of mine reads this as it’s pretty related to a conversation we were having yesterday about EI (*cough* Annie *cough*). “Say, for example, that Esther has a peer who is overbearing and abrasive (or has any other quality that is against the House Style of the organization). Rather than smoothing over every interaction, with a broader balance of EI skills she could bring up the issue to her colleague directly, drawing on emotional self-control to keep her own reactivity at bay while telling him what, specifically, does not work in his style. Bringing simmering issues to the surface goes to the core of conflict management. Esther could also draw on influence strategy to explain to her colleague that she wants to see him succeed, and that if he monitored how his style impacted those around him he would understand how a change would help everyone.”

G and B conclude by stating the importance of taking a comprehensive “formal 360-degree assessment, which incorporates systematic, anonymous observations of your behavior by people who work with you, have been found to not correlate well with IQ or personality, but they are the best predictors of a leader’s effectiveness, actual business performance engagement, and job (and life) satisfaction.” One thing that is worth noting here, is this is just another example of the importance of coaching in professional and personal life. I will discuss this later, but coaching goes far beyond the athletic world, and should be used as frequently as possible. It is very easy for someone to think they are doing one thing, only to be told by a competent second set of eyes that they are doing far from what they think they are.