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ORGANIZATIONAL DEVELOPMENT, DESIGN & LEARNING
Design Thinking, Explained

WHY IT MATTERS

Coming up with an idea is easy. Coming up with the right one takes work. With design thinking, throwing out what you think you know and starting from scratch opens up all kinds of possibilities.

What is design thinking?
Design thinking is an innovative problem-solving process rooted in a set of skills.

The approach has been around for decades, but it only started gaining traction outside of the design community after the  2008 Harvard Business Review article[subscription required] titled “Design Thinking” by Tim Brown, CEO and president of design company IDEO.

Since then, the design thinking process has been applied to developing new products and services, and to a whole range of problems, from creating a business model for  selling solar panels in Africa to the operation of  Airbnb.

At a high level, the steps involved in the design thinking process are simple: first, fully understand the problem; second, explore a wide range of possible solutions; third, iterate extensively through prototyping and testing; and finally, implement through the customary deployment mechanisms. 

The skills associated with these steps help people apply creativity to effectively solve real-world problems better than they otherwise would. They can be readily learned, but take effort. For instance, when trying to understand a problem, setting aside your own preconceptions is vital, but it’s hard. Creative brainstorming is necessary for developing possible solutions, but many people don’t do it particularly well. And throughout the process it is critical to engage in modeling, analysis, prototyping, and testing, and to really learn from these many iterations.

Once you master the skills central to the design thinking approach, they can be applied to solve problems in daily life and any industry.

Here’s what you need to know to get started.

design-thinking-info

Understand the problem 
The first step in design thinking is to understand the problem you are trying to solve before searching for solutions. Sometimes, the problem you need to address is not the one you originally set out to tackle.

“Most people don’t make much of an effort to explore the problem space before exploring the solution space,” said MIT Sloan professor Steve Eppinger. The mistake they make is to try and empathize, connecting the stated problem only to their own experiences. This falsely leads to the belief that you completely understand the situation. But the actual problem is always broader, more nuanced, or different than people originally assume.

Take the example of a meal delivery service in Holstebro, Denmark. When a team first began looking at the problem of poor nutrition and malnourishment among the elderly in the city, many of whom received meals from the service, it thought that simply updating the menu options would be a sufficient solution. But after closer observation, the team realized the scope of  the problem was much larger, and that they would need to redesign the entire experience, not only for those receiving the meals, but for those preparing the meals as well. While the company changed almost everything about itself, including rebranding as The Good Kitchen, the most important change the company made when rethinking its business model was shifting how employees viewed themselves and their work. That, in turn, helped them create better meals (which were also drastically changed), yielding happier, better nourished customers.

Involve users
Imagine you are designing a new walker for rehabilitation patients and the elderly, but you have never used one. Could you fully understand what customers need? Certainly not, if you haven’t extensively observed and spoken with real customers. There is a reason that design thinking is often referred to as human-centered design.

“You have to immerse yourself in the problem,” Eppinger said.

How do you start to understand how to build a better walker? When a team from MIT’s  Integrated Design and Management program together with the design firm Altitude took on that task, they met with walker users to interview them, observe them, and understand their experiences. 

   
“We center the design process on human beings by understanding their needs at the beginning, and then include them throughout the development and testing process,” Eppinger said.

Central to the design thinking process is prototyping and testing (more on that later) which allows designers to try, to fail, and to learn what works. Testing also involves customers, and that continued involvement provides essential user feedback on potential designs and use cases. If the MIT-Altitude team studying walkers had ended user involvement after its initial interviews, it would likely have ended up with a walker that didn’t work very well for customers. 

It is also important to interview and understand other stakeholders, like people selling the product, or those who are supporting the users throughout the product life cycle.

Go wild!
The second phase of design thinking is developing solutions to the problem (which you now fully understand). This begins with what most people know as brainstorming.

Hold nothing back during brainstorming sessions — except criticism. Infeasible ideas can generate useful solutions, but you’d never get there if you shoot down every impractical idea from the start.

“One of the key principles of brainstorming is to suspend judgment,” Eppinger said. “When we're exploring the solution space, we first broaden the search and generate lots of possibilities, including the wild and crazy ideas. Of course, the only way we're going to build on the wild and crazy ideas is if we consider them in the first place.”

That doesn’t mean you never judge the ideas, Eppinger said. That part comes later, in downselection. “But if we want 100 ideas to choose from, we can’t be very critical.”

In the case of The Good Kitchen, the kitchen employees were given new uniforms. Why? Uniforms don’t directly affect the competence of the cooks or the taste of the food.

But during interviews conducted with kitchen employees, designers realized that morale was low, in part because employees were bored preparing the same dishes over and over again, in part because they felt that others had a poor perception of them. The new, chef-style uniforms gave the cooks a greater sense of pride. It was only part of the solution, but if the idea had been rejected outright, or perhaps not even suggested, the company would have missed an important aspect of the solution.

Prototype and test. Repeat.
You’ve defined the problem. You’ve spoken to customers. You’ve brainstormed, come up with all sorts of ideas, and worked with your team to boil those ideas down to the ones you think may actually solve the problem you’ve defined.

What next?

“We don’t develop a good solution just by thinking about a list of ideas, bullet points and rough sketches,” Eppinger said. “We explore potential solutions through modeling and prototyping. We design, we build, we test, and repeat — this design iteration process is absolutely critical to effective design thinking.”

Repeating this loop of prototyping, testing, and gathering user feedback is crucial for making sure the design is right — that is, it works for customers, you can build it, and you can support it.

“After several iterations, we might get something that works, we validate it with real customers, and we often find that what we thought was a great solution is actually only just OK. But then we can make it a lot better through even just a few more iterations,” Eppinger said.

Implementation
The goal of all the steps that come before this is to have the best possible solution before you move into implementing the design. Your team will spend most of its time, its money, and its energy on this stage.

“Implementation involves detailed design, training, tooling, and ramping up. It is a huge amount of effort, so get it right before you expend that effort,” said Eppinger.

Think big
Design thinking isn’t just for “things.” If you are only applying the approach to physical products, you aren’t getting the most out of it. Design thinking can be applied to any problem that needs a creative solution. When Eppinger ran into a primary school educator who told him design thinking was big in his school, Eppinger thought he meant that they were teaching students the tenets of design thinking.

“It turns out they meant they were using design thinking in running their operations and improving the school programs. It’s being applied everywhere these days,” Eppinger said.

In another example from the education field, Peruvian entrepreneur Carlos Rodriguez-Pastor hired design consulting firm IDEO to  redesign every aspect of the learning experience in a network of schools in Peru. The ultimate goal? To elevate Peru’s middle class.

As you’d expect, many large corporations have also adopted design thinking. IBM has adopted it at a company-wide level, training many of its nearly 400,000 employees in  design thinking principles.

What can design thinking do for your business?
The impact of all the buzz around design thinking today is that people are realizing that “anybody who has a challenge that needs creative problem solving could benefit from this approach,” Eppinger said. That means that managers can use it, not only to design a new product or service, “but anytime they’ve got a challenge, a problem to solve.”

Applying design thinking techniques to business problems can help executives across industries rethink their product offerings, grow their markets, offer greater value to customers, or innovate and stay relevant. “I don’t know industries that can’t use design thinking,” said Eppinger.

Ready to go deeper?
Read “The Designful Company” by Marty Neumeier, a book that focuses on how businesses can benefit from design thinking, and “Product Design and Development,” co-authored by Eppinger, to better understand the detailed methods.


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ORGANIZATIONAL DEVELOPMENT, DESIGN & LEARNING
Becoming a Learning Culture: Competing in an Age of Disruption

All industries are undergoing enormous change, mostly due to new technologies, globalization, and a very diverse workforce. For example, in the hospitality industry smartphones put scheduling and reservations HolidayInnat our fingertips, literally. Social media allows restaurants, hotels, airlines, and travel services to market 
directly to us based on our personal interests. Apps give us car services and meals on-demand – no waiting. These services are competition for established companies and are changing the industry and guest expectations. Uber, Lyft, Airbnb, and Grubhub are just the beginning. The industry will continue to evolve dramatically.

Any company, faced with these kinds of disruptive forces must keep learning. Employees must learn how to use new computers and new apps, how to operate new, high tech machinery, how to be responsive to customer demands, how to create innovative products and services, how to manage a multi-cultural, multi-generational workforce, how to work effectively in cross-functional teams, and how to plan for a future that is constantly in flux.

The only thing holding companies back from learning at the speed of change is their organizational culture which, for many, is a barrier to learning. Most companies have a training culture, not a learning culture. This emphasis on formal training is a barrier to learning and change. In a training culture, responsibility for employee learning resides with instructors and training managers. In that kind of culture, trainers (under the direction of a CLO) drive learning.

Whereas in a learning culture, responsibility for learning resides with each employee, each team, and each manager. In that kind of culture, employees, with the help of their managers, seek out the knowledge and skills they need, when and where that knowledge and those skills are needed.

In a training culture, most important learning happens in events, such as workshops, courses, elearning programs, and conferences. In a learning culture, learning happens all the time, at events but also on-the-job, facilitated by coaches and mentors, from action-learning, via smartphones and tablets, in social groupings, and from experiments. Learning is just-in-time, on-demand.

In a training culture, the training and development function is centralized. The CLO, or HR, or a training department controls the resources for learning. When new competencies need to be developed, employees and their managers rely on this centralized function. In a learning culture, everyone is responsible for learning. The entire organization is engaged in facilitating and supporting learning, in the workplace and outside the workplace.

In a training culture, departmental units compete with each other for information. Each unit wants to know more and control more than the other units. This competition can result in short-term gains for those units and even for the organization as a whole (e.g., drug development in pharmaceutical companies). In a learning culture, knowledge and skills are shared freely among units. Everyone is working to help everyone else learn from the successes and failures across the organization. This creates a more sustainable and adaptable organization.

In a training culture, the learning and development function is evaluated on the basis of delivery of programs and materials. Typically, what matters to management is the courses that were offered and how many people attended. In a learning culture, what matters is the knowledge and skills acquired and applied in the workplace and impact on achieving the organization’s strategic goals. It’s less about output and more about impact and the difference that learning makes for individuals, teams, and the entire organization.

Managers play a pivotal role in creating and sustaining a learning culture. They do not have to be instructors nor do they have to be expert in the knowledge and skills needed by their direct reports. However, they do have to hold the belief that people can learn and change, what Carol Dweck calls the “growth mindset”. Managers must care about their own learning, and they must value the development of the people they supervise. If they have these beliefs and values, then managers can contribute significantly to learning in their organizations.

In our book, The 5As Framework, Sean Murray and I describe seven steps managers can take to facilitate and support learning of their direct reports:

  • STEP ONE: Discuss what the learner needs to learn in order to help your business unit achieve its objectives and the organization’s strategic goals.
  • STEP TWO: Agree on a set of learning objectives for the short-term and long-term.
  • STEP THREE: Agree on the indicators that will be used to determine progress toward those objectives and achievement of goals.
  • STEP FOUR: Describe how the learner can get the most out of the learning intervention.
  • STEP FIVE: Arrange for the learner to get whatever resources he/she needs to apply the learning to your business unit.
  • STEP SIX: Plan regular meetings (they may be brief) to discuss progress toward objectives and goals and any changes that would help the learner’s progress.
  • STEP SEVEN: Make modifications in the learning intervention as needed.

Essentially, managers should work with learners to set goals, clarify expectations, provide opportunities for application, and hold them accountable for making a difference. Learning professionals can certainly help managers with this, but managers are in the best position to facilitate the kind of day-to-day learning that is needed in high performance organizations today.

Managers are essential to employee development in our fast changing world. But the culture of the organization as a whole needs to be supportive of learning. Applying traditional notions of education (K-12 or post-secondary) to the workplace will limit the growth and competitiveness of any company. Learning must be woven into the very fabric of the organization.


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ORGANIZATIONAL DEVELOPMENT, DESIGN & LEARNING
Systems diagnostics are essential to create high performance

I have spent the better part of two decades helping organizations solve big, complex challenges that hold back performance and create problems with strategy execution. The problems have varied from talent to teams to the operating model and workforce management. And the solutions have ranged from compensation, to communication, to work redesign, matrix decision making, leadership behaviors, and much more. But the one thing that has been a critical part of the diagnosis and finding solutions in all cases has been systems thinking. 

Systems thinking has roots that trace back over six decades ago to Kurt Lewin (1951), and include approaches promoted by prominent authors including Leavitt (1965), Galbraith (1977), Tichy (1983), and many more. At its most fundamental, this approach demands that we look at the entire organizational system when diagnosing the sources of performance problems to identify solutions that work.

Yet despite the long pedigree of systems thinking and a proven track record, it is rarely applied as a diagnostic tool in organizations today, and especially not by people who sit in talent and workforce diagnostic roles. In my work with leadership and analytics groups I see a time honored pattern of repeating the mistakes made by generations of budding social scientists when they are just learning the tools of the diagnostics trade. They play around in the data, looking for interesting patterns. They fall into the trap of going down one path of inquiry because it seems like a good idea, when doing the alternative of taking a step back, pausing and examining a bigger landscape would help them see a better way to go. They declare victory when they find interesting insights so long as there is something useful that can be accomplished from the insights. The end result is a lot of effort expended for relative low ROI.

In one blog like this I cannot provide a full treatment of systems thinking and how organizational diagnostics need to be conducted differently. Here I introduce the idea of systems diagnosis at the job, team and organizational levels. At the end there are links to related posts that go further into some aspects of systems diagnosis. There also is a link to a workshop Alexis Fink and I are leading that provides a deep dive and skill building on the topic as a way to improve organizational performance.

Systems diagnosis to improve job performance

There are two critical aspects of systems diagnosis at the job level that need to be applied any time you want to look for improvements in job performance: (a) addressing job design simultaneously with motivation/engagement and skills, and (b) including high performance work design principles.

The problem with non-systems thinking at the job level starts with half-baked attempts to improve performance by both business leaders and HR. Job performance is driven by three interdependent parts: job design, motivation and skills (competencies). Yet rather than consider all three at the same time – the basic tenet of systems thinking and diagnosis – 99% of the time those parts are bifurcated and addressed separately, and wholly incompletely, by the business and by HR.

Job design is typically addressed only by business leaders, separately from motivation and skills. Job design is controlled directly when business leaders redesign the org structure and work processes to improve performance. It’s also controlled indirectly by leaders through the annual budgeting process: when they decide what parts of the business will get new investments, and when they set compensation budgets based on simplistic assumptions about how much money needs to be spent to generate the desired performance levels. Their approach comes up short because they believe that by specifying the nature of jobs and how much to spend on them, that alone will produce desired performance. It usually does not.

A comparable problem arises from the way HR approaches improving performance using the levers of motivation and skills only. Since HR isn’t invited to focus on job design and is asked to focus solely on motivation / engagement and skills, it’s hard to blame them for ignoring job design since they are usually excluded from the most important job design decisions. Yet that means they daily go into battle without a key weapon in the job performance arsenal. Sometimes it’s possible to improve performance by focusing only on motivation/engagement, on skills, or both. But the solution often falls short of what should be achieved because job design issues aren’t addressed: the job’s roles and responsibilities, how it’s resourced, how it fits into other jobs on the team and within the organization more broadly, etc. I can’t count how many times I’ve been asked to help a company diagnose the sources of performance issues, only to find that key elements of job design hold back true breakthrough improvements. Ignoring job design is like going into battle with one arm tied behind your back. Not generally advisable.

A similar problem stems from ignoring high performance work design principles. Also called high involvement work design by Ed Lawler, high performance work design diagnostics start from the reality that there are choices to be made about decision rights, the amount of discretion/autonomy, and the skills needed to staff any role. At one end of the spectrum are traditionally designed jobs where the employee is treated as someone not to be trusted, with little discretion over how to do the work, very close supervision (a.k.a. micromanagement), and a job profile best suited to people who won’t rebel against being so closely controlled. Examples include many call center, data entry, merchandising, and assembly line jobs, among others. Those workplaces are staffed by managers who spend their time constantly looking over the shoulders of their employees to make sure they don’t step out of line. 

High performance jobs in contrast have a lot more freedom, transferring some key decision making from managers to employees, freeing up the managers to focus on coaching and developing their people, and on finding ways to improve operations. While it sounds like those are preferable choices under any circumstance, the history of organizational performance has proven that there are tradeoffs that align closely with the business model. A cashier at low margin fast food restaurants is a traditionally-designed job; at Starbucks it’s a high performance job with the fancy name of barista. In each case, the company’s business model points strongly toward whether jobs should be designed with more traditional versus high performance characteristics.

Systems diagnosis at the job level is required to assess where a job should fall on the traditional versus high performance ends of the spectrum, or somewhere in between, including how the job is paid and staffed. Yet time and again I come across jobs embedded in work systems and corporate strategies where there is misalignment between the different elements, greatly reducing performance and/or the ROI on the compensation spent on the job. Sometimes the problem lies in previous rounds of cost cutting and headcount reduction which create unrealistic performance expectations for the role. Sometimes the performance problems are self-inflicted by leaders who promise both cost savings and improved performance; this often happens when the starting point is full alignment, and the leader then tests the waters by holding back on the investments needed to maintain high performance, which leads to a slow motion bleeding of the resources needed to support the high performance design. Sometimes resources and budget have been hoarded by leaders who wanted to ensure their teams are well taken care of when they need to be redeployed to where they can better suit the enterprise. Whatever the underlying source of the misalignment, only a true systems diagnosis can determine how to get the investments targeted where they need to be both within any given job, and across the entire portfolio of jobs in the value creation chain. 

Systems diagnosis to improve team performance

Team performance is an even bigger objective for leaders than job performance yet the solutions similarly fall short for lack of systems diagnostics. The problems parallel the job level issues because business and HR take a bifurcated, not systems, approach to tackling team challenges. And huge opportunity and value are left sitting on the table because the diagnostics that are used typically ignore principles of high performing team design.

First the lack of alignment between the business and HR. Business diagnosis and problem solving of team issues usually focuses on objectives (goal setting), performance management (holding the team accountable for performance), and staffing (who is on the team). Business leaders tend to ignore the interpersonal dynamics, career issues and other aspects of team development that are essential for effective team performance; those are left for HR to deal with. 

There is deep body of knowledge about how to enable teams to function effectively which organizational development (OD) professionals typically employ to address team productivity issues. The insights include the importance of achieving milestones such as developing a shared understanding about the team’s objectives and how to accomplish them; achieving alignment and integration among the team members in how the work is performed; developing trust in team members’ ability and willingness to follow through on commitments; applying cross-training where appropriate to minimize disruptions from absenteeism and turnover; and more. Yet it is more the exception than the rule for companies to make extensive use of OD expertise in the HR function; that is the first barrier to improving team performance. 

Second, the typical OD approach lacks a way to distinguish whether the team is appropriately oriented towards the business operating model. It is one thing to identify ways in which a team would perform better if given greater resources and support; it is an entirely different thing to determine the ROI of potential team improvements by evaluating them in the context of the business model, and a strategy-based view of resource allocation. Only a systems diagnostic that combines both the business and HR/OD approaches at the same time can identify the best way to target and provide that support. 

A key part of the approach should include high performance team design diagnostics. Just as jobs can be designed with more versus less decision making / discretion, autonomy, micromanagement and skills, the same applies to teams. In fact, the decision is often over whether a team approach should be used at all, versus the work being performed by a collection of individuals whose jobs are managed separately from each other. The classic example is the introduction of self-managing work teams in assembly line manufacturing, which was a central element of high performance work design in manufacturing plants; that design converted individually-managed jobs into interdependent team jobs. High performance team design principles can be applied in customer service teams, maintenance teams, and so on. A systems diagnostic, done the right way, takes all of this into account when looking for team performance solutions, including the design of the work itself. 

Systems diagnosis to improve enterprise performance

At the enterprise level there is another set of systems diagnostics that needs to be applied yet rarely is. An enterprise level systems diagnosis determines which teams should be prioritized for what types of investment, and the extent to which they should focus on incremental improvement to existing operations versus out-of-the-box innovation and big change to current business processes.

A major problem in most organizations is a lack of clarity and consistency around the sources of competitive advantage and how to align the organization to maximize it. It is one thing for the CEO and C-suite members to send messages about the strategy and how to accomplish it. Doing so means having a laser-like focus on the sources of competitive advantage: branding and distribution for consumer products companies; new product development and M&A for pharmaceuticals; innovation for tech consumer products companies; having a dominant platform or network for internet companies; customer service for high end retailers; and so on. Yet a laser-like focus on the sources of competitive advantage alone is not enough: when the work gets separated into different functions with leaders responsible for each part, competition for support and challenges of managing in a matrix structure creates tensions that have to be resolved at multiple organizational levels. A systems diagnostic is usually the only reliable way to determine the right tradeoffs among who gets to decide what, how to deal with conflict across organizational siloes, and which parts of the organization have higher priority for support and attention from both senior leaders and middle managers. 

The other fundamental tension in organizations is between maximizing the efficiency and effectiveness of current operations versus exploring how best to innovate and create profitable new products and services that are substantial deviations from the company’s main offerings. Diagnosing how to do both at the same time requires a system-wide view of business and talent processes. Too often leadership sets unrealistic expectations for accomplishing both at the same time because each requires a fundamentally different orientation in business processes, culture and rewards. Increasing the effectiveness of current operations is essential for increasing margins, customer retention, and cash flow. It requires an efficiency orientation and continuous improvement mindset, which emphasize fine tuning business and talent processes. Innovating products and services in ways that are fundamentally different from your core offerings means changing mindsets, establishing new business processes, and rewarding people for different kinds of behavior. It requires challenging and making changes to current business and talent processes – which works opposite from the efficiency orientation needed to optimize those current processes. Systems diagnostics are needed to assess the full tradeoffs between the two approaches, including down to the team and job levels, so that options for doing both simultaneously can be thoroughly evaluated and vetted for effective decision making. 


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ORGANIZATIONAL DEVELOPMENT, DESIGN & LEARNING
High Performance Work Design Trumps Employee Engagement

People usually equate high performance with employee engagement. Yet engagement is not the same as productivity and performance. How engaged people are depends on the work design, and the work design itself can promote productivity separately from employee engagement. Individual ability also is a critical contributor. Together they are the three main contributors to job performance: state of mind, ability, and job design. Engagement refers only to the first, yet the other two are arguably more important, especially for sustained performance over an extended time. 

In the short term, performance can be increased through greater effort. This is what people commonly call high performance: applying extra energy, time and persistence to accomplish stretch goals. Whether you’re running a 5-K race, juggling multiple deliverables or working late to meet a tight deadline, you have to make a conscience effort to do the best you can — or risk falling short of your goals. Discretionary effort like this is what a lot of people mean when they talk about employee engagement. 

However, high performance cannot be sustained solely through persevering and extreme perspiration. Sustained high performance happens through the right combination of motivation (engagement), skills (competencies), and job design (role and responsibilities). Each of these three components must be aligned to achieve sustained high performance. Two parts — motivation and competencies — are familiar to everyone and need little explanation. The third part — job design — is equally important but receives less attention. 

Job design is often summarized as “roles and responsibilities,” meaning the job requirements. But that leaves out central aspects of the job that drive high performance. Consider the difference between a McDonald’s cashier and a Starbucks barista. Both are roles that take customer orders and process them, yet there are substantial differences. The Starbucks barista is an example of high performance job design, while the McDonald’s cashier is not. The traditional job designs’ work is more rote, involves less decision-making and supports lower priced/lower margin products and services.

High performance work design often means giving people the leeway to make decisions as close to the frontlines as possible while breaking down hierarchical ways of organizing and managing work. Ed Lawler has also called it high involvement work design because it usually more closely involves frontline employees in information sharing and decision-making. 

The early history of high performance work design starts with W. Edwards Deming and the ideas he developed for improving quality in traditional manufacturing lines. Deming’s ideas were first adopted by Japanese automobile and other manufacturers and included the use of continuous improvement and self-managing work teams. They have since become a common application in manufacturing industries around the world. Yet they are not universally applied because of the challenges of designing and operating the entire system according to the principles. 

The approach replaces traditional command-and-control management, which has decision-making higher up the hierarchy, with decision-making closer to where production and the delivery of services take place. Do it right and you can improve product quality, decrease waste and increase customer satisfaction. Get it wrong and you end up throwing away money.

There is a tradeoff between compensation and job design. Pushing decision making down to frontline roles usually requires higher compensation for two reasons: leaders often need to pay more to attract more highly skilled people, and the higher pay can be used to reward high performance. The job design and compensation are aligned when you have traditional job design and median (or lower) pay, and when you have high performance job design and upper quartile pay. 

While the principle is easy to state, in practice things often get out of whack. Many leaders argue that their people should be more highly paid, especially if they don’t personally own the profit-and-loss. When labor costs are in someone else’s budget, there’s little incentive to make hard choices about distributing compensation strategically. This can lead to overpaying for some traditional jobs. Are the people who are overpaid productive? Usually, but that’s not the problem. The challenge is how to get the highest return from that money. Is it allocated based on true business need, or based on the power of the leader running the group?

A much bigger problem is virtually every organization’s maniacal emphasis on cost containment. Keeping an eye on expenses is a good thing. However, it’s easy to meet short-term financial goals by scrimping on labor costs without having an immediate negative impact on motivation, productivity or turnover – and that creates a danger. When the work system is designed well, people enjoy what they do, get good feedback, are well rewarded for their performance, etc. In that environment, if leaders cut back a little bit on labor costs — say by giving raises that don’t keep up with inflation — there won’t be an immediate negative impact. This looks like a win-win for the business: the short-term financial objectives are met while performance is maintained. All is good, right?

Wrong. The strong temptation to cut compensation to boost margins can lead to addict-type behavior where leaders become hooked on a dangerous habit. Before long compensation has fallen significantly from where it needs to be, leading to a big disconnect between pay and the job design. 

A lot of the differences in the application of high performance job design are driven by differences in business strategy. At McDonald’s the strategy is to provide low cost-food using low-cost labor, so traditional job designs are appropriate for the jobs in its restaurants. Starbucks’ strategy, conversely, is to provide high quality food and an experience customers will pay higher prices for. To achieve that strategy, Starbucks needs higher-cost baristas who are skilled and motivated to provide the high-quality experience. So the barista job uses a high performance work design. 

Choosing a traditional versus high performance job design is a question not just of business strategy but also the sources of competitive advantage. The jobs that are more central for competitive advantage usually are prime candidates for high performance design. The jobs that are not core contributors to competitive advantage also are not necessarily high performance design candidates. For example, Starbucks does not need high performance sanitation services in its stores, in contrast to the manufacturing clean rooms at companies like Samsung and Intel. 

Even if a job is not a core contributor to competitive advantage, it still can be a candidate for high performance design. There is a long literature on the potential benefits of high performance, high involvement job designs. Even if a job is not a source of competitive advantage, it still can benefit from applying high performance principles.

The reason for taking a more high performance approach is to give the person in the job the incentives, tools and freedom to make better decisions independently. The classic case is manufacturing line workers and self-managing teams. Workers in that system are given greater decision making authority to diagnose and solve production and quality problems immediately. The design often includes higher pay to compensate for the higher level of decision-making skills. It also usually includes greater supervisor spans of control. Fewer supervisors are needed because they don’t have to spend huge amounts of time closely monitoring their employees’ work. Instead, they can focus on skill building and coaching their employees to make better decisions. The lower number of supervisors helps to fund higher frontline pay.

The same principles can be applied in other industries. For knowledge workers, the debate over whether they should be given greater freedom to work when and where they want often boils down to an argument based on high performance principles. Under high performance work design, there is much greater emphasis on the output the employees produce, not where and how they produce it. Of course, giving people greater freedom to work outside of regular hours sitting in an office within sight of their supervisors does not require paying them more — and in fact is often viewed as a benefit. Yet many other aspects of the work design are similar. The lower supervision needed, meanwhile, can be translated into fewer supervisors, freeing up resources that can be invested in greater frontline employee pay. This enables the hiring of people with greater ability to think independently and work on their own.

It is important to note that many jobs are tightly controlled by technology, where it appears there is little leeway to use high performance work design because there is little room for independent decision-making. For example, many call-center jobs are heavily controlled by technology that monitors how long an employee is on the phone with each customer. This emphasis on efficiency leaves the employee little latitude other than to finish as many calls as possible, creating the appearance that there is no room to give them control over how to deal with each call. 

However, that is not reality. Employees have great control over the effort needed to make customers happy, an organizational objective more important than how many calls can be processed per hour. If a customer is being difficult they can decide to transfer them to another representative, or even to pretend that the call was cut off prematurely and hang up on the customer. The discretion employees wield in how they treat customers means the organization cannot rely on efficiency metrics alone. Giving employees greater control over the number of calls per hour, and trusting them to decide how best to balance efficiency and customer satisfaction is a type of high performance work design. Moreover, employees who are given greater discretion should apply it better when offered greater compensation. After all, they have more to lose so they should be more diligent.

High-performance work design is complex. To make it work, leaders have to design and align different organizational parts and processes. This includes pushing decision-making down to the lowest level possible; sharing critical information so frontline employees can make autonomous decisions; hiring and training employees to make those decisions; providing compensation that supports and rewards higher productivity; and managing more through coaching and influence rather than micromanaging. 

The multiple parts in a high-performance work system create lots of opportunities for things to go wrong. Employees may lack the information needed for optimal decision-making; rewards may not sufficiently differentiate high from low performers; compensation may not attract the best performers; or managers may revert to micromanaging at the first sign of poor performance. Leaders need to diagnose the system to determine where are the areas of improvement that will support sustained high performance. A piecemeal approach to designing the work will not put the right levers in place at the right time.


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ORGANIZATIONAL DEVELOPMENT, DESIGN & LEARNING
Workforce Planning That Really Is Strategic

(co-authored with Alexis Fink)

Most workforce planning efforts are fairly short sighted and narrow, and could more accurately be called 12 month hiring plans. Strategic workforce planning promises to deliver greater value by using a longer time horizon and a talent supply chain approach. The problem, however, is that even then it’s still too narrowly focused on the low hanging fruit of butts in seats. In order for HR to really raise its game, workforce planning has to be much more focused on addressing holistically the systemic talent issues that impede business performance.

Workforce planning traditionally has meant annual forecasts for how many people are needed in a role, with the forecasts happening less than six months before the end of the fiscal year as part of the budget-setting process. Strategic workforce planning focuses farther out on how the business’ needs will evolve over two or more years, to anticipate and solve talent gaps that are too hard to address in six months or less. For example, strategic workforce planning often includes identifying roles staffed with a large number of older people who are on the verge of retirement, and making plans in advance to ensure a stable talent pipeline of people to succeed them. Another common example is identifying key areas where the business plans to grow and calculating how to meet the talent demands and avoid shortages.

That type of analytics is essential to avoid big gaps in the number of people needed to do the work. But that only focuses on who does the work, not how it gets done. Most of the people-related issues that arise from the work design cannot be easily addressed through adjusting headcount. The “how” is essential for truly strategic workforce planning because it opens the door to reconsidering the barriers to strategy execution that are rooted in how roles and responsibilities are designed, and the competency and recruiting profiles used to evaluate how talent contributes to organizational success.

There is a great opportunity for heads of talent analytics and their teams to play an important role positioning their organizations for success through this work. But it requires a different orientation than thinking about the problem as workforce planning, one which looks beyond the job to the system of work in which the job is embedded. This includes taking into consideration business objectives such as capacity utilization, cost minimization and more. For people working in talent analytics, the issue is not much different from the business coming to you and asking for help on how to optimize productivity and employee engagement. The challenge is learning how to do so by looking at the bigger picture of the system of work, and incorporating perspectives such as job design and organization design which go beyond the data typically available for talent analytics.

“Strategic” workforce planning today. Strategic workforce planning focuses on existing or new roles, matching up labor forecasts with analysis of the supply of people to fill those roles. For example, consider account managers at a bank. Strategic workforce planning would look at where the banks’ services are growing the most, taking into account which lines of business and geographies are expected to have the greatest increase in demand. It would then plan on hiring more account managers where the forecasted gap is highest.

Yet forecasting the number of account managers and where they need to grow the fastest does not address any root causes of performance that come from how the work is designed. The ultimate goal is not necessarily avoiding vacancies in the account manager role. Instead, the bigger picture is how the bank delivers its products and services in a cost effective way. When talent analytics leaders take as given the way roles are currently defined, they perpetuate inefficiencies in the work design that can lead to hiring people who are over- or underqualified for the work, and overpaying for skills which aren’t needed or underpaying for ones that are. Any future looking strategy must take into account things like redesigning the work to increase efficiency and increasing opportunity for automation as a disrupter of work processes.

In the bank’s case, the ultimate objectives are customer service, selling more high-margin products and services, and getting customers to use the bank for a greater proportion of their banking needs. Customer service is important because it keeps people from leaving, lowering the acquisition cost of the bank’s assets. Higher-margin products and services increase the bank’s profitability. Getting customers to use the bank for a greater share of their banking needs increases retention and lowers acquisition costs. 

Hiring more and better account managers may help the bank improve its performance along those dimensions. Account managers definitely contribute to customer service, higher-margin sales, and cross-selling. Yet they are only one contributor to improved business performance. Improving those business metrics often requires other changes in the work system that complement what account managers do. 

Take customer service, for example. Account managers are important contributors to the customer experience, but they alone do not define it. The phone system the customer first encounters when calling in, the employees who interact with the customer both in person and over the phone, and other employees in the branch aside from the account managers also contribute to customer service. Just focusing on the account managers alone through traditional workforce planning almost always won’t be enough to meet the bank’s objectives for customer service. You have to consider the broader ways the organizational system creates the customer experience.

Apply job analysis for better workforce planning. The fundamental problem for talent analytics leaders is that “strategic” workforce planning focuses only on the number of people needed to fill anticipated vacancies. Taking a longer horizon look and considering the talent supply chain are useful innovations over traditional workforce planning, and those significant advances in the field have increased its relevance and contribution in recent years. Yet they are still too narrowly focused on the job as it currently exists. A much better approach diagnoses the job design to find the bottlenecks to performance, and uses that analysis to design more holistic solutions.

Consider the example of health care. Doctors are the most expensive, highest-skilled labor in healthcare delivery and the main bottlenecks to improved, cost-effective performance. Having doctors spend more time on patient care is key to improving health outcomes in many settings, yet typically it is too expensive to just add more doctors. That’s why the health care system centuries ago created the role of nurse, a less expensive counterpart to doctors. For the longest time, nurses were the main workforce planning solution used to solve the problem of increasing the number of patients treated per hour each doctor works.

However, in more recent decades nursing shortages have pushed the health care industry to innovate further, increasing the use of roles such as physician assistant to free up both doctors and nurses to treat more patients per hour. The insight of creating the role of physician assistant never came from a traditional workforce planning approach. It also never would have emerged from what passes for the current state of the art in “strategic” workforce planning, which focuses on existing roles. Instead, the analysis that led to creating the physician assistant role required a holistic diagnosis of the health care delivery system and the constraints on both doctors’ and nurses’ time. 

The key is expanding the analysis from focusing on vacancies and hours worked in one job (role) to the set of roles that make up a complete work process. So rather than focus solely on the physicians and how many hours they work, the diagnosis hones in on the number of patients served per hour the physician works. The key question is how to optimize the number of patients treated per hour by the entire system of roles, not just the single role of physician. If the total labor cost per patient served can be lowered, then the total number of patients treated per hour can be expanded more cost effectively than by simply adding additional physician hours. 

The larger point here is that the focus needs to start with the business objectives. In a healthcare system, for example, the strategic objectives are treating patients effectively and efficiently to minimize costs and optimize health outcomes. Workforce planning focuses only on jobs, not the other parts of the system that need to be optimized. In a hospital, capacity utilization (keeping the beds full) is a critical objective so that the fixed costs of running the building can be spread over as many patients per day as possible. In a medical practice, the same principle applies: keep the exam rooms full and minimize the amount of time needed to treat each patient by the doctors.

The key for talent analytics leaders who want to improve the strategic relevance of workforce planning is to take the perspective of a forward thinking business partner. This means going beyond looking at the existing jobs and engaging in the “what if” questions around how best to optimize the work design. In the medical practice case, taking this approach broadens the scope of the analysis to include questions such as “how can we free up doctors to spend more time on effective patient care per hour?” Viewed this way, the solutions can come from many different approaches, not all of which involve traditional health care jobs. For example, electronic medical records cut down on the amount of time doctors have to spend reading paper records on patient care, while increasing the amount of information doctors can access while treating each patient; this happens through aggregation of medical records that previously were located in each doctor’s office and not instantaneously accessible by other physicians treating the same patient. Advocating for electronic medical records would never emerge from today’s strategic workforce planning approaches, and yet any conversations about implementing electronic medical records should include talent analytics representatives because of the new jobs needed to make it happen.

Take a holistic view of the team, not just one job. The main message is that workforce planning has to go beyond the traditional focus on jobs and instead focus on teams. And rather than think about the work one role at a time, talent analytics leaders need to consider specific tasks and bottlenecks to performance that are rooted in parts of the job. 

Going back to our health care example, even today with the team approach of doctor, nurse and physician assistant, physician time is still the bottleneck to improved performance in many cases. If we could just free up doctors to spend more time with patients, efficiencies and patient outcomes could be improved further. The roles of nurse and physician assistant evolved as ways to take parts of the health care delivery system out of doctors’ hands and give them to others with different skillsets but who nonetheless can perform a lot of skilled tasks without needing a doctor in the room at the same time. The question is what additional changes or innovations can free up doctors further.

The most recent answer is medical scribes. These are people who accompany doctors as they do their patient visits, transcribing the details of the patient’s condition and the doctor’s instructions for care. Using scribes frees up doctors from the very time consuming task of writing up the notes from the patient visit. 

The job of medical scribe would never have been identified by today’s strategic workforce planning approaches. Instead, a systems diagnostic of the work and the challenge of doctors’ time being very expensive led health care organizations to realize there was another way to cheaply solve the bottleneck of physician time. The solution lay in adding lower-priced skilled labor that frees up the doctor to spend more time on what only they can uniquely do: diagnose and treat patients. The job of physician assistant, like nurse, is a traditional extender role which requires medical training and decision making. The scribe role, in contrast, broadens the focus to include non-clinical roles. Medical scribes need to be skilled enough to write down accurately what they hear, but they do not have to be trained and certified as medical providers to add value. Medical scribe roles are a lot like court reporter roles: court reporters have to know enough about the legal process to record everything accurately, yet they are not as highly skilled on legal issues as lawyers or even law associates. 

The team-based diagnostic approach takes into account how the work is performed, and considers reconfiguring tasks across jobs to make more robust talent systems. These more robust systems can increase flexibility and efficiency by identifying the optimal way for the organization as a whole to function. Take for example the different tasks that have to be performed in supply chain operations. Optimizing the supply chain includes determining which tasks and roles can be outsourced when there are suppliers that have expertise that complements or even exceeds what the organization can do on its own. Yet the decision on outsourcing is not a simple one of the cost of services and availability of people to provide them. Even more critical is how those services fit into the creation and preservation of the company’s competitive advantage.

Evolution in organizational size, complexity, product offerings, competitive threats, and technology combine to create a dynamic reality for organizations. The perfect solution two years ago may be suboptimal today. Something impractical two years ago may offer significant competitive advantage today. For example, in the near future, the role of scribe may further evolve to be completed by a virtual digital assistant, as voice recognition capability improves. Workforce needs are not static. To succeed, organizations must continually adapt and adjust their workforce planning.  


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ORGANIZATIONAL DEVELOPMENT, DESIGN & LEARNING
Does your organisation really need a major restructuring?

For global businesses, the past two years have been a period of turbulence. Amid substantial global uncertainty – speculation around the impact of Brexit, the recent US presidential election and heightened trade regulations in some countries, many businesses are facing poor organic growth prospects and considering a major restructuring. But is major restructuring the right move?

Although organisations must constantly change with the time to survive, often times a major change is not necessary. Focusing only on a particular area of the business or flexing the existing model can be sufficient.

The 2017 HRD Summit Europe brought about a fascinating round table on the topic ‘do you really need to restructure?’ Participants from a wide range of industries shared their views and business stories around restructuring.

What kinds of challenges really require a major restructuring?

The kinds of challenges that were brought up in the round table varied: a luxury goods maker is under pressure to accelerate its business from a seasonal cycle of activity to a monthly pulse, affecting everyone from design to supply chain to marketing, and even to HR and Finance; a national broadcaster is planning to digitise its entire business from advertising through to back office systems. From this discussion, we agreed on four main conditions that make up a strong case for a major restructuring:

  1. Fundamental change in the value chain
  2. Fundamental changes in roles and the activities per role
  3. Switch from modes of organising: e.g. from geographical to functional or client segment
  4. And when organisational needs are blocked by human inability to change: location, skills, ways of working, or to achieve the sheer speed required

What kinds of challenges can be handled without a major restructuring?

Since major restructuring is messy, hard and disruptive, unless the case for it is overwhelming, focus only on redesigning a particular area of the business. Below are types of challenges that could be handled without major restructuring; businesses could cope by flexing within their existing structure:

  1. When the issue is failure to deliver against existing roles and specifications, rather than a need to change the roles and specifications
  2. When changes in scale alone are required
  3. When no fundamental change in the business model is needed

When have you seen a restructuring deliver value (and why did it work)?

Below are some interesting examples of when restructuring has delivered value to the organisation:

  1. Aviva*: 12,000 integrated headcount reshaped to 9,000 on time, and on budget
  2. Shell-BG: delivered integration synergies up to $4.5bn vs expected $3.5bn per year
  3. Hospitals in Atul Gawande’s Checklist Manifesto: clear metric in patient mortality

*OrgVue project. We have more case studies on organisational transformation here

What are your top tips for success when undertaking a major restructuring project?

Milestone delivery distribution curves

Figure 2. Milestone delivery distribution curves – estimating and tracking impact of risks

Major restructuring is risky with many hidden traps along the journey. Examples include strong personalities and ego, budget constraints, and lack of alignment which can lead to restructuring around individuals, restructuring the top level to assert executive power, and ‘rightsizing’ the workforce in an unfair manner. Below are some tips for success to consider during both design and delivery phases.

In the design phase, it’s crucial to establish:

  1. Clarity on overall purpose
  2. Clear design criteria
  3. Aligned metrics for success
  4. Clear case for change

And then in the delivery, identify who will do what, where, when and the cost and headcount impact. For example, what are the benefits of getting clear responsibilities?  What is the benefit of delivering one month faster? This means you will need:

  1. Good data management to track progress
  2. A solid plan to deliver the implementation, not just the design (‘Make it Real’)
  3. Ways to measure and track impact
Sunburst org structure visual in OrgVue coloured by role

Figure 1. Sunburst visualisation of an organisation’s current structure coloured by role in OrgVue. Tracking progress and impact is essential, and you need to support this with clear, engaging ways of presenting that story to help bring on board sceptics and drive actions.

Finally, I want to reinforce that major restructuring is a tough journey. Organisations need a clear case for change to make it worthwhile. If not, it’s better to consider the improvements you can make within your existing structures, such as by working to achieve clarity on headcount, costs, responsibilities and deliverables.

These topics are all covered in depth in my colleague Rupert Morrison’s book ‘Data-driven Organization Design’.

Download ‘The Data Goldmine’ free chapter
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