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Work. Because business is about people

From da Vinci to Don Johnson: the enduring mystery of creativity The end of the organisation – and the companies who’ve found a better way If apes understand fairness, why can’t business? Male, pale and stale: why we need a new breed of non-executive

Autumn 2014

Work.

Because business is about people

When Kate Bush returned to the stage last month after a 35-year absence, the capacity crowd was treated to a theatrical extravaganza that owed much more to the human mind than the ever more rapid pace of technological change. But how often in today’s information-rich workplaces do we give ourselves the space and time we need to unleash that creativity? If there’s one message to take away from this edition of Work. it’s that creativity and innovation don’t just happen by chance, and if you want more of it in your organisation you need to create the right conditions for it to ﬂourish. Please do give us your feedback at work.editorial@ cipd.co.uk and if you’d like the digital edition you’ll ﬁnd it on the App Store and Google Play. Claire Warren, Editor

Features in detail p4 Perspectives: distilled management thinking p6 15 minutes with… Birchbox’s Katia Beauchamp p12 The end of the organisation p14 Who said work had to be fair? p24 Interview: Toby Peyton-Jones of Siemens p30 Creativity and the myth of the Eureka moment p34 Linda Hill on driving innovation p48 Mind the global skills gap p52 Who'd be a non-executive director? p60 Debrief: business research, reports and insight p66 Further reading p76 The off-piste guide to work-life balance p78

Genius not at work: this much doodled-on page from Leonardo da Vinci’s notebook dates from around 1482 and also contains a list of his works written back to front, a technique he used to encrypt words.

Joseph Michael, 20Th Century Fox / The Kobal Collection, Andrew Shaylor, Justin de Villeneuve/Getty Images, Mitch Weiss, Press Association, Rex Features

FEATURES IN DETAIL

The future of work

Primal instinct

Spotlight: Toby Unblocking Peyton-Jones the ﬂow

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The traditional, rigid hierarchical structure that dominates organisations across the globe was borrowed from the military and the church in the 19th century – and many believe it’s well past its sell-by date. More importantly, is it holding companies back? Jeremy Hazlehurst investigates the history of the modern organisation and ponders whether we need evolution or revolution. Four successful businesses then present their individual cases for a smarter way of working that makes for a happier, more productive workforce. The future, it seems, is already here…

Building on research published in 2007, which proved a link between fairness and happiness, the CIPD, in conjunction with the University of Lancaster’s Centre for Performance-Led HR and the Work Foundation, has kicked off a threeyear project to look at the implications of our notions of fairness. It points to a “direct relationship between perceptions of unfairness and employer advocacy, job satisfaction and turnover intention”. Indeed, as the CIPD’s Wilson Wong says, the current yawning wealth gaps, along with decreasing job security and diminishing pension payments indicate that fairness has never been more relevant to the society in which we live. And as writer Morice Mendoza points out, it’s an instinct so ancient we even share it with one of our oldest ancestors.

As German technology giant Siemens presses ahead with a major restructuring plan, Tim Smedley ﬁnds that UK HR director Toby Peyton-Jones is playing a vital role in preparing its employees for changes designed to turn the business around and take it successfully to the end of the decade and beyond. As part of Vision 2020, the company expects to make efficiency savings of €1 billion annually but, as Peyton-Jones is keen to stress, this isn’t a case study in austerity. Rather than doing the same with fewer resources, he says, this is about “smarter ways of working and redeploying resources”.

There are two problems with the concept of the Eureka moment. Archimedes may never actually have run naked into the street after supposedly using bathwater to test the purity of gold in a crown and, when it comes down to it, creativity just isn’t that simple. Flashes of inspiration, far from being random acts, often require groundwork – even if an apple did hit Isaac Newton on the head, it would have been the hard work he put in over the previous decades that really led to his epiphany. So how do you create the right conditions to unleash creativity? Paul Simpson has some answers.

Jeremy Hazlehurst has written for titles including Management Today and specialises in understanding how family ﬁrms prosper.

Tim Smedley is a freelance journalist who writes for both the Financial Times and The Guardian.

Paul Simpson is an experienced business journalist and regular contributor to Wanderlust magazine.

What drives innovation?

Mind the gap

Boardroom garnish?

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Many people fear conﬂict and, as a result, we often miss out on opportunities to engage in the kind of healthy debate that leads to innovation, Linda Hill tells Claire Warren. The Harvard Business School professor and co-author of Collective Genius, has studied many of the world’s leading organisations and believes that to drive innovation, businesses must create a culture that is sufficiently supportive to allow employees to freely share their ideas, but confrontational enough to enable breakthrough thinking. Innovation, she says, is hard work and if you want to do it time and time again, you need to create an environment in which employees are both willing and able to innovate – and that takes leadership.

Just when it looks like we’ve ﬁnally banished one crisis, another appears on the horizon. We may be out of economic hot water but, the Prince’s Trust reports, almost three quarters of British businesses say the UK will be facing a severe skills shortage in the next three years. Already, a third of organisations are experiencing this problem at entry level, the charity says, while over half are unable to ﬁll vacancies. The UK Commission for Employment and Skills has also warned that jobs and skills gaps are threatening economic growth. But the talent crisis isn’t just affecting the UK. It’s a growing global phenomenon, as Stefan Stern reports.

“The days of turning up for a quick hour and a good lunch are long gone,” says Sir Bryan Nicholson, former chairman of the Financial Reporting Council, referring to how the role of the non-executive director has changed over the years. Once ridiculed as being as useful as a sprig of parsley on a ﬁsh dish, the non-exec’s position in the boardroom has become increasingly pivotal, not only as a voice of reason and balance, but also in bringing complementary skills to the table. But, as Jane Simms writes, this shift in status has implications for the background, skills and requirements of those who are willing to take on the role. And, she asks, have the demands placed on today’s nonexecutive directors gone a step too far?

Stefan Stern is a columnist at the Financial Times and a visiting professor at Cass Business School.

Debrief p66-75 Leadership development

The blinkered nature of the narcissistic CEO can negatively affect corporate strategy.

Corporate giving

Charitable activity should be based on strategic goals rather than pure obligation.

Learning and development

Taking people out of their comfort zones makes for more effective training.

Information management

Fears over the reputational effects of online information mean businesses are missing out on a key opportunity.

Women in business

Singapore trails behind other countries in the region when it comes to the number of women on company boards.

Business ﬁnance

Britain’s fast-growth small and medium-sized enterprises are suffering from a funding crisis.

Marketing strategies

As soon as exclusive brands start expanding their customer base, they are staring at the prospect of losing their cachet.

Employee engagement

Enterprise social networks could be the tool HR has been looking for to connect employees.

Negotiation skills

When it comes to sealing a deal or negotiating a pay rise, shaking hands could be more than simply a greeting.

Customer communications

The content of your messages is crucial to engaging with people through social media.

Learning from failure

Only people with a clear sense of their responsibilities can make a positive out of a negative.

Decision-making

Mindfulness is rising to prominence as a key tool to help leaders make better decisions.

Employee value

The CIPD has identiﬁed four indicators to help organisations measure their human capital.

PERSPECTIVES MANAGEMENT THINKING DISTILLED

Q&A ROSELINDE TORRES

“The ‘super’ leader is from another time”

Press Association, Robert Campell, Alamy

A RECENT Boston Consulting Group study of 4,000 companies found that 58 per cent felt they weren’t developing the right talent for leadership roles. With innovation and information flowing at faster speeds, BCG senior partner Roselinde Torres warns that such gaps will hinder performance. Fortunately, as she tells Work., companies can rectify this – if they focus on distributed leadership rather than heroic CEOs. Why do companies need to rethink their approach to leadership? Many of us have an image of this all-knowing superhero who commands and protects, but that’s a picture from another time. There are several reasons why high-performing teams will complement and leverage great leaders. Team members can fill the gaps in a leader’s expertise and experience – necessary as business becomes more global, complex and digital – and they can be an extension of a leader’s institutional influence because, no matter how energetic, a leader cannot be everywhere. 06

What’s the evidence that this shift is happening? The BCG Strategy Institute studied leadership teams and identified the characteristics of adaptive, top-performing CEOs. Regardless of industry sector or region, those who practised distributed leadership performed consistently better. The CEOs didn’t allow endless consensus-building discussions. They were just more judicious about when to ‘plant the flag’ or take the decision. Have you had any business leaders actively disagree with you? Sometimes a CEO wonders whether my approach absolves a leader from the accountability of leadership. Or a CEO will ask whether shared leadership dissolves into consensus chaos because no one is in charge. I’ve also encountered leaders who believe that benevolent paternalism is welcomed. There are still situations in which authoritarian leaders get results but I like to ask these leaders: “If you did not have your title or authority, would people still follow you?” Do any leadership development programmes get it right? Most companies believe their programmes are more innovative and effective than they really are. Those getting it right focus less on teaching and more on providing exposure to topics, places and people – it enables leaders to fulfil their potential. If development has not evolved, it is usually a reflection of the senior leadership’s arrogance or inability to change.

What a state the state is in IN 1989, in an essay called The End Of History, political scientist Francis Fukuyama predicted that liberal, capitalist democracy would sweep the planet. In The Origins of Political Order and Political Order and Political Decay (out this month) he explores why that never happened. “If there is a single, overarching theme,” writes Fukuyama in his blog for the US foreign policy website American Interest, “it has to do with the importance of states and state capacity in producing high-quality government… weak states and poor governance have long been understood to be at the source of poor economic development outcomes. But it is also a problem for developed countries, in particular the United States. We have more democracy and rule of law around the world than ever before, but people remain dissatisﬁed.” The 2014 Edelman trust barometer, which surveyed 33,000 people in 27 countries, found that only 15 per cent of respondents had a great deal of trust in government. Such disenchantment comes as no surprise to Fukuyama, who argues that, in the US in particular: “We are up to our ears in public policy analysis but have not paid enough attention to old-fashioned public administration.” Fukuyama is professor of political science at Stanford University.

The secret of talent management IF LEADERS want to build and sustain “game-changing organisations”, management thinker Douglas Ready argues that they could learn from asset managers BlackRock. His current research, he tells Work., focuses on “how to create organisations that are purposedriven, performance-oriented and principles-led.” Displaying one or two is easy, he says, “but doing all three at the same time is tricky. For example, we might have a compelling purpose statement and a core set of values, but if your company’s margins start thinning there is pressure to cut costs and people. Doing so might conflict with your core values.” Ready cites BlackRock as a successful case study. Larry Fink, the firm's co-founder, sets a clear purpose: to be fiduciaries to clients. “They have a powerful set of principles that guide managerial decision-making on a day-to-day basis,” says Ready. Jeff Smith, BlackRock’s chief HR officer, has helped drive this. “Great HR leaders are disciplined business leaders, but they are not bureaucrats. They understand human behaviour but they are not ‘touchy-feely’. When you are around Jeff, you can almost feel the ‘edge’: he is one of the chief stewards of BlackRock’s culture but he really gets the business.” Ready is senior lecturer at MIT Sloan School of Management.

I N G P OI

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PERSPECTIVES

When should you fire the CEO? Should the CEO always be the first person to go when an organisation hits the rocks? Using the leader as a scapegoat may be a quick fix, but is it usually in the long-term interests of the company, particularly as they may be best-placed to turn things around? Work. asks two experts whether the buck always stops at the top

EXPERTS’ VIEW

PROFESSOR RITA MCGRATH

PROFESSOR ERIK DE HAAN

Columbia Business School‚ New York

Ashridge Business School

YOU NEED to judge whether the CEO under pressure to go has a convincing point of view about the future. For example‚ plenty of people wanted Netﬂix CEO Reed Hastings to go when he was reorganising the company into two parts: Qwikster for DVDs and Netﬂix for streaming. Customers were enraged at suddenly having two services and Hastings quipped he’d need a food taster. But critically, he listened and developed a better future strategy which led to today’s success. It would clearly have been wrong to sack him.

CHIEF EXECUTIVES today tend to be greatly over-valued while at the same time, power relentlessly corrupts them. In recent research with my co-author Anthony Kasozi (The Leadership Shadow)‚ we found it very hard to ascribe beneﬁcial effects that derived purely from leadership. It is notoriously hard to measure the added value a leader brings to the business. At the same time‚ power often brings out negative personality traits‚ impairing their ability to function.

Research has shown that with some shining exceptions – Nancy McKinstry‚ the transformational leader of media company Wolters Kluwer‚ springs to mind – CEOs who have spent a long time in office tend to become too inwardly focused and are in danger of becoming complacent, a problem experienced by the long-serving co-CEOs of BlackBerry, who stepped down in 2012.

It is true that sometimes leaders take a fall when it is not their fault, but it is usually better to let them go when they come under strong criticism. Philip Clarke [who was ousted from Tesco in July following the latest proﬁt warning]‚ for example‚ could not be blamed for the changing market conditions that damaged the supermarket after he had taken over. Equally‚ in the political ﬁeld‚ Iraqi Prime Minister Nouri al-Maliki was not directly responsible for the troubles there. They both might have had a strong case for staying, yet they both went.

Whether the embattled CEO can really be open to the changes that need to happen must be a crucial consideration. Ideally‚ the momentum of change in your CEO role should somehow keep pace with the momentum of change your company needs. McGrath will be delivering the opening keynote at the CIPD’s annual conference on November 5 & 6.

In general‚ holding leaders accountable is helpful as an organisation prepares for the next phase. It can be safer to let a CEO go‚ knowing that they may have been in power long enough to have developed unhelpful negative traits.

PERSPECTIVES NC

OM I N

G2G outsourcing What is it? A trade in which one government outsources its services to another. The idea isn’t new – European bureaucrats formed a council to manage the Ottoman Empire’s debts as long ago as 1875, and France has long guided monetary policy for 14 African nations by managing their currency – but as the world’s policymakers look for quick solutions‚ it is becoming increasingly relevant. Is this really a global trend? With Singapore managing urban development projects in China‚ the Dutch Army training its tank crews with German forces and Britain set to host an arbitration court for Saudi Arabian disputes‚ it certainly seems so. What’s driving it? Policymaking is an increasingly comparative business‚ with governments looking for best practice across the globe as they seek to reconcile public expectations and financial constraints. To give just one example‚ Mexico’s policy to only pay benefits to poor families who get their children vaccinated and send them to school has now been copied by almost 50 nations. “There is a growing recognition that governments are service providers and that we should be looking for the most efficient ways to provide those services‚” says Paul Romer‚ professor of economics at Stern School of Business. Who stands to benefit? Romer believes the UK could gain. “Gordon Brown once said: ‘In establishing the rule of law‚ the first five centuries are the hardest.’ Britain has centuries of experience with the rule of law and could offer policing and judicial services to a state that hasn’t yet established that rule.” Globally‚ he suggests that bringing more efficient government services to poorly run countries could prove a greater economic boon than lowering trade barriers in the private sector. The bottom line Although sovereignty issues may deter some governments from G2G, Romer says: “Nations export many kinds of services‚ so there’s no reason why they shouldn’t export government services too. It would be great if Britain‚ known for the quality of its government‚ signalled that it would be willing to export such services.”

Charting a new people strategy AS THE team behind 'Blue Ocean Strategy', W. Chan Kim and Renée Mauborgne are sticking to the nautical theme with 'Blue Ocean Leadership', a strategy they say can unlock organisational talent. The urgency of their mission is underlined by a recent Gallup State of the American Workplace study that found only 30 per cent of employees were engaged. Gallup estimated that disaffected staff cost the US economy about $500bn a year. Kim and Mauborgne argue: “Leadership can be thought of as a service that people… either ‘buy’ or ‘don’t buy’. Every leader in that sense has customers: bosses to whom the leader must deliver performance and followers who need the leader’s guidance and support to achieve.” Traditionally, organisations have focused on the values and qualities that make for good leadership. The Blue Ocean strategy, they say, “puts as much emphasis on what acts and activities leaders should eliminate as on what they should raise to become highly effective leaders”. This approach owes an obvious debt to ‘servant leadership’, an approach championed by Robert Greenleaf as far back as 1970, but with corporate leadership under relentless scrutiny, Blue Ocean Leadership’s strategic message may be particularly timely. W. Chan Kim and Renée Mauborgne are professors of strategy at INSEAD.

A legacy of leading by example “THE MANAGER has his eye on the bottom line, the leader has his eye on the horizon.” Those were probably the most famous words of Warren Bennis, the American organisational expert who died at the age of 89 on 31 July 2014. The author of more than 30 books on management, Bennis was hailed by The Economist as “the most important thinker on the subject that business leaders care about more than any other: themselves.” At the core of his writing was a belief that leadership must change with the times, and the conviction that leaders were made, not born or, as he put it: “I believe in ‘possible selves’, the capacity to adapt and change.” In his book Leaders: The Strategies for Taking Charge, Bennis said leaders must form a vision to give people a bridge to the future, communicate that vision, build trust and know themselves by growing as individuals. Before Bennis, management theory had largely ignored the mysterious fact that some executives could inspire, motivate and anticipate better than others. His writings changed that – he was soon dubbed “the father of leadership”. Warren Bennis was an author, scholar and organisational consultant.

Lisa Jane Persky, Richard Walker

PERSPECTIVES

JANE HYUN

High achievers with a low proﬁle

IN A WORKPLACE FULL OF DIFFERENCE, THE BEST MANAGERS LEARN TO CHANGE THEIR STYLE

DO YOU REALLY know which of your staff are adding value to your business? The need to look beyond limelight-hoggers was mooted by Susan Cain, who championed the contribution made by introverts in her book Quiet (2013). In a similar vein, writer David Zweig argues that organisations need to identify their ‘invisibles’ – skilled high performers who choose to ﬂy under the radar. Zweig told Work.: “In a culture where gaining attention seems to be valued above nearly all else, these people choose to work behind the scenes and thrive there.” His book, Invisibles: The Power of Anonymous Work in an Age of Relentless Self-Promotion suggests these professionals are “motivated by the value of their work”. Intrinsic rewards had a stronger correlation with fulﬁlment and success. Zweig also believes ‘invisibles’ make good leaders: “Many of the ‘invisibles’ I met are in high executive positions. People like Dennis Poon, the lead structural engineer on many of the world’s tallest skyscrapers... whenever I asked him a question about himself he invariably answered ‘we’ instead of ‘I’. I saw this collectivist mindset over and over.” This might sound like a “There’s no I in team” cliché, but Zweig's work is a reminder for leaders to go beyond the obvious when identifying ‘stars’.

IF YOU WANT to know what’s you’re the woman in an otherwise happening in your organisation, it all-male environment – you’re going will come as no surprise to learn you to have to learn to operate in the have to listen to your employees. dominant-culture style, and you will And yet listening is something we’re inevitably make mistakes. A manager still not particularly accomplished who understands your differences at. I talk to employees all the time can be transformational: in this role, and I hear the same thing over and they act almost as interpreters. over again: ‘I wish my manager Managers who can ‘flex’ understood what I’m really about their styles don’t change their and took the time to get to know me’. personalities. But they are adaptive For most managers, this is a and willing to stretch their difficult skill to master. The social perspectives to accommodate distance that separates a manager others. They know that if they lead from their employees an employee from a “The social distance culture where speaking remains significant. In that separates egalitarian workplaces directly is the norm, a manager from with a smaller power they should be more their employees gap, managers are direct in order to get remains significant” a response. They have treated as coaches and guides. In others, unconditional positive managers are still the authority regard; they are comfortable with figures of old. ambiguity and complexity. This matters because the Aside from self-awareness, workplace is changing. In the US, these traits have something else women now make up 50 per cent of in common. They are to do with the workforce and they have more knowing the other – understanding masters degrees than men. The that someone else has ways of number of ethnic backgrounds working and thinking distinct from at work is mushrooming, and our own. Many of us are uneasy millennials are flooding the office, talking about difference. We are bringing their own expectations. unwilling to ask questions for fear of Business leaders may talk about the causing offence. But if it’s done with importance of diversity, but once positive intentions, most people are these people get through the door willing to share a little bit about their talent often goes unleveraged themselves. And if we were all to because if you’re any sort of minority be just a little bit more open, who – whether you’re the youngest or knows what might happen?

Zweig is a writer, lecturer and musician based in Brooklyn, New York.

Jane Hyun is co-author of Flex: The New Playbook for Managing Across Differences.

PERSPECTIVES

BEST OF

Classic talks and the latest thinking from the idea incubator DAN PINK: The puzzle of motivation Bestselling author of Drive, former speechwriter for Al Gore In his seminal TED talk‚ Pink argued that “There is a mismatch between what science knows and what business does.” A Princeton study found that teams offered ﬁnancial rewards to solve a problem were 3.5 minutes slower than control groups. “This is one of the most ignored ﬁndings in social science‚” says Pink. Financial incentives can boost the performance of simple‚ low-skilled tasks‚ but not the creative‚ problem-solving tasks that typify 21st century work. “Too many organisations are making their decisions‚ their policies about talent and people‚ rooted more in folklore than in science‚” Pink suggests. He was talking in 2009. Have attitudes changed since then?

RAY KURZWEIL: Thinking through the cloud Google’s director of engineering‚ inventor of optical character recognition software Kurzweil says humankind must prepare for “hybrid thinking” where we can augment our capacity for thought through cloud computing. The expansion of the physical neocortex facilitated a quantum leap in thinking for mammals 200 million years ago. Over the next 20 years‚ Kurzweil predicts a similar leap forward as nanobots “go into our brain through the capillaries and connect our neocortex to a synthetic neocortex in the cloud.” The possibilities this opens up are so vast you might need to use the cloud to imagine them… SIMON SINEK: Why good leaders succeed Motivational speaker and leadership expert The best leaders‚ Sinek believes‚ inspire followers by making them feel protected. “In the military‚ they give medals to people who sacrifice themselves so that others may gain. In business‚ we give bonuses to people who sacrifice others so that they may gain. We have it backwards‚” he says. Creating the right environment at an organisation – a “circle of safety” – could help everyone within it achieve remarkable things. It takes a leader – not necessarily someone with authority – to make the first sacrifice‚ and inspire others to follow.

The great divide: is it time to split up HR? RAM CHARAN stoked up a fierce debate in the July-August edition of Harvard Business Review. It is time, he wrote, “to say goodbye to the department of human resources” because the strategic excellence that HR directors claim to offer isn’t being delivered. Drawing on his experience as a consultant to such corporate giants as General Electric, Bank of America, DuPont, 3M, Tata and Verizon, Charan argued that chief executives want HRDs to act like chief finance officers (CFO) – as sounding boards and trusted partners – but suggested very few did so. Charan’s remedy? Split the HR department in two. These two strands would be distinct: “HR-A (for administration) would primarily manage compensation and benefits and report to the CFO, who would have to see compensation as a talent magnet, not just a major cost. “HR-LO (for leadership and organisation) would focus on improving the business’s people capabilities and report to the CEO.” The best HR-LO leaders would, Charan suggested, have no background in – and come from

outside – the HR world, citing Bill Conaty, GE’s former senior vicepresident of human resources, a plant manager before Jack Welch promoted him. Charan said he expected “plenty of opposition” to his proposal and Dave Ulrich soon proved him right. In his HBR blog ‘Do Not Split HR – At Least Not Ram Charan’s Way’ Ulrich called the consultant’s critique of HR “unfair and simplistic” adding: “Charan’s advocacy for a ‘talent’ HR role limits the breadth of what HR can and should deliver. When HR professionals bring unique insights about talent, leadership and capability to the senior management dialogue, they add enormous value.” The closing line of Charan’s article read: “The problem with HR is real. One way or another, it will have to gain the business acumen needed to help organisations perform at their best.” Don’t expect this debate to end anytime soon. Charan is a business adviser, speaker and author. His most recent book is Global Tilt: Leading your Business Through the Great Economic Power Shift.

PERSPECTIVES

HAMISH McRAE

Getty Images, Richard Walker

USING PEOPLE MORE EFFECTIVELY IS ONE WAY TO SOLVE THE PRODUCTIVITY PUZZLE. EASILY SAID, SO MUCH HARDER TO DO “PRODUCTIVITY isn’t everything, but in the long run it is almost everything,” wrote Paul Krugman, the Nobel Prize-winning economist. His point being that unless economies raised productivity they could not raise living standards, an observation that has particular resonance for the UK. The economy has just passed its previous peak of 2008, but real wages are still on average 4 per cent lower than they were then. Yet employment is at an all-time high. If more people are working and putting in more hours to achieve the same output, it follows that productivity must have fallen. Why this should have happened is a huge puzzle, especially because we haven’t seen a similar decline in other developed economies. America’s GDP is now about 5 per cent larger than in 2008 but employment has not returned to its former peak. Though much of Europe has struggled to create any new jobs, Germany has increased output and employment to record levels – although critics say many of these new positions are “mini-jobs”, with low pay and limited hours. It appears that the UK has been successful at creating jobs but unsuccessful at increasing the efficiency of those jobs. This is a puzzle no one has fully solved. As often happens, you don’t

know what has been happening until years after the event. There are some partial explanations – namely, that we have been under-measuring output. It is harder to measure the output of service industries, which comprise two-thirds of the economy, but the under-measuring would have to be massive to explain the entire shortfall. Self-employment and the shift to part-time working may be part of the answer. The most convincing explanation has come from Ian McCafferty, “Human ingenuity will mean we figure out how we do more with less. And there are huge prizes for those that succeed in doing so” a member of the Bank of England’s Monetary Policy Committee, who calculated that more than half the fall in productivity could be attributed to three industries – North Sea oil and gas, education and financial services – while another five industries accounted for the rest. This would make sense. In the North Sea, as oil and gas output falls you need as many people, maybe more people, just to stem that decline. In education, the drop may be offset by improvements in the quality of output, as school and university results improve. In financial services, output is measured

by fees and other earnings, which were probably unsustainably high, and rewarded activities that did not really make the nation wealthier. This leads to the somewhat troubling conclusion that the fall in productivity will not automatically correct itself. The oil and gas industries will probably need more people to produce what will inevitably be less output. McCafferty’s calculations suggest that 60 per cent of the shortfall in productivity could be attributed to non-cyclical factors and will not self-correct as demand recovered. What is to be done? The obvious solution is for employers to use their people more effectively. Easily said but harder to do. This is an immediate challenge for the UK and a longer-term one for the entire developed world. The pessimistic view is that gains in productivity will be tougher to achieve than before because it has proved harder to increase output per head in service industries than in manufacturing. That said, you have to be a real pessimist to believe that human ingenuity will not ﬁgure out ways of deploying talent more efficiently: by better training and education, more ﬂexible use of labour, greater use of communications technology, and so on. How do we do more with less? There are huge prizes for those that succeed in doing so.

Hamish McRae is associate editor of The Independent.

minutes with...

Katia Beauchamp The co-CEO of online beauty retailer Birchbox on being driven and going physical

On her career-deﬁning moment At college when I was 19 I did an internship with Estée Lauder and realised the beauty industry was incredible. These intelligent people were able to use both sides of their brain. It was amazingly analytical, but people managing brands were also making gut decisions – using data, but also their feel for something. I was really attracted to that. On co-founder Hayley Barna We were in the same class at Harvard and realised we shared the same sensibilities. Right before graduation we decided to write a business plan. It wasn’t necessarily our intention to start a company, but we got so excited when we came up with the idea for Birchbox. On pitching the concept The ﬁrst thing we did was cold-email the CEOs of brands. We asked for advice and said we’d be testing the concept while still in business school. The response 12

was overwhelming, so we got the brands on board and quickly got a website built. We wanted free products [samples from the brands], but the bigger win was that they were willing to put it out there that they were working with a small start-up. On starting up It was incredibly challenging, a lot of long hours and people saying: “No.” There were times I thought: “I can’t keep going at this pace,” but that’s where having a partner was such a godsend. Whenever I was having a bad day and feeling disillusioned, Hayley would be having a great day and vice versa. On moving into management Managing is so much harder than doing. It’s a lot of work to ﬁgure out how to create a lasting culture to drive the company towards its goals and dreams. It’s also more difficult because you can’t help but love everyone who has come to your company to help realise the vision, putting their hearts and souls into it. It’s harder to get to know hundreds of people than it is your ﬁrst 20 employees, but I don’t believe in the idea of distancing for efficiency. On building a brand The culture you create internally ends up being the brand that consumers get to know

externally. When you are a consumer product company and everything is copyable, all you have is a brand – this intangible thing that consumers decide they want to engage with. So making sure the culture is one that reflects your brand is vital. Eventually, the only thing that keeps you up at night is how to continue to get people who are as motivated and passionate about what you do, and happy to push the envelope to help you evolve. On opening her first store We wanted to take what we do online and bring it offline. A big part of what we do is study our customers’ behaviour to customise their experience, so the products they are getting are relevant to them. What we do offline will evolve as we learn how consumers are interacting. On using heat sensors to track customers in store As this is our first physical store, it’s a laboratory. It’s important to understand where people are spending their time, where they are engaging and their path through the store. On growing staff levels Every week there are new people, but we are making sure we hire at the right pace, to avoid any sudden changes. I know we’ll be a lot bigger in the next 12 to 18 months.

Interview: Claire Warren; Photography: Alice Gao

On her early years The things I do for Birchbox are things I’ve done all my life. I was very driven as a child, always taking on leadership roles. I was the president of my high school, and captain of the cheerleading squad. The ﬁrst thing I ever said I wanted to be when I grew up was the President.

PERSPECTIVES

About Birchbox

Harvard graduates Katia Beauchamp (right) and Hayley Barna launched the online beauty outlet in 2010, opening their ďŹ rst physical store in New York in July 2014. A devoted following of over 800,000 women subscribe to its monthly beauty sample boxes, half of which go on to buy full-sized versions. The company, which also offers boxes for men, raised $60 million in new venture funding in April 2014, and was valued at $485 million.

TH E

END If the organisation didnâ&#x20AC;&#x2122;t exist, would anyone bother

to invent it? Jeremy Hazlehurst asks whether work

will always be so rigidly aligned and counter-intuitive

ondering the meaning of a striking addition to the Manhattan skyline in 1896, celebrated architect Louis H Sullivan noted the skyscraper had a myriad of offices “similar to the cell in a honeycombe”, in his famous article The Tall Office Building Artistically Considered in Lippincott’s Magazine. The word ‘cell’, with its links to prisons, not bees, seems slightly jarring. Yet, as Nikil Saval points out in his recent book Cubed: The Secret History of the Workplace, when California faced a prison overcrowding crisis in the 1980s, managers studied the way designers of offices crammed so many people into so little space. The cubicle, where millions of workers toil in what Saval calls “frenzied solitude”, is a symbol of just how unfulfilling work has become. Disappointing, disillusioned employees – all set at 90 degrees to each other to squeeze as many in as possible – revert to the sardonic passivity of cartoon drudge Dilbert, while managers and directors fret that their business is not innovative enough and devise new, well-intentioned schemes that mysteriously fail to have the desired inspirational effect on their staff. Does work really have to be like this? An increasing number of bosses and businesses thinks not. Pioneering a totally different organisational model called holocracy – from the Greek word holon meaning ‘governance by the whole’ – is Zappos, an American online retailer with billions of dollars in revenues, no bosses and laughter yoga classes. Self-consciously wacky, Zappos shows you don’t need structure to make money. Michigan’s Menlo Innovations is even more on trend as a company of the future. The technology business makes decisions democratically, aims to bring joy to the office and takes transparency to such extremes that it posts employee salaries on its office wall (see page 23). Zappos is following a trail blazed by Semco, the highly profitable Brazilian engineering firm run by its staff. Its CEO Ricardo Semler boasts he hasn’t made a decision since 1993. Less publicised, but still flourishing, is Gore,

the maker of Gore-Tex, which calls itself a “team-based, flat lattice organisation that fosters personal initiative” and has “no traditional organisational charts, chains of command, nor predetermined communication channels”. At two other companies in very different sectors – Southwest Airlines and Indian IT giant HCL Technologies – the leaders turned the traditional organisational pyramid upside down: senior managers support staff in the “value zone”, those dealing with customers. You might be forgiven for thinking you have heard some of this before. ‘Participative management’ theory has gone in and out of fashion since the 1920s. Yet the success of GE’s experiments with teaming – in which workers own the production process and help manage their plants – suggests something is stirring in the corporate heartland. The idea that existing organisational models need reinventing is spreading from lecture halls to boardrooms. To realise why, it is necessary to understand how corporate structures and cultures came to be what they are. The business empires that emerged in late 19th-century America borrowed organisational models from the military and the church. To the founders of behemoths like DuPont, Ford and Standard Oil, the ecclesiastical and military precedents for hierarchies made this seem like the only way to run a company. The command and control hierarchical conglomerate, where head office dictated strategy and operations – and where authority gravitated to the CEO at the top of the corporate pyramid – became the default corporate setting in the US and UK. The imperative to keep growing, often through diversification, prompted some tweaks to the model. Recognising it had to act faster to exploit new markets and sectors after World War I – and that head office didn’t need to control all strategy and operations – DuPont decentralised some decision-making to divisions that enjoyed some autonomy, as long as they met the financial targets and adhered to the strategy set by head office. By the 1960s, the American corporate consensus was that this multi-division company approach drove faster growth. The pharmaceutical, medical and consumer

EIGHT OBJECTS THAT DEFINED BUSINESS

THE CLOG Frederick Taylor’s or’s scientiﬁc management used a stopwatch to measure workers’ productivity. In the 1910s, in protest at the focus on ‘speeding up’, Industrial Workers of the World union members threw wooden shoes to literally clog up the machinery.

THE STYROFOAM CUP For many of the growing legions of freelancers, contractors or ‘solopreneurs’, Starbucks is the nearest thing they have to an office. The chain is looking to build on this, rolling out free, one-click wi-ﬁ in the US.

Plainpicture/Jean-Pierre Attal, Superstock, Press Association

the end of the organisation

giant Johnson & Johnson became the poster child for this managers to manage the managers. Decision-making model, and now generates revenues of around $67 billion slowed, employees were disempowered and turf wars from more than 250 component businesses. erupted. Bureaucratisation could reach absurd extremes. Yet in many companies, such initiatives didn’t In his memoir A Kentish Lad, Frank Muir recalls a dispute change the model fundamentally. Ultimately, head office at the BBC in the 1960s when, as deputy head of light still called the shots and CEOs ruled head office. The entertainment, he moved into an office vacated by the hierarchies were physically embodied in towering head of department that came with its own fully fitted corporate headquarters where the top managers worked carpet. As a deputy department head, Muir was not, BBC above their underlings. On the shop floor, the lowest of rules stipulated, entitled to a fitted carpet. Eventually, a the low were judged by the stopwatch mentality of solution was found: two handymen cut out a strip of Frederick Taylor’s scientific management. carpet about two feet wide and took it away, thereby The gradations in many of these hierarchies often ensuring regulations were upheld. had similar landmarks. In corporate satires as diverse as In a number of companies, bureaucracy was a serious Billy Wilder’s 1960 movie The Apartment and the 1970s burden. Warren Buffett famously remarked that, inside sitcom Are You Being Served?, the the first month of one major prized reward for aspiring Berkshire Hathaway acquisition, upwardly mobile executives he eliminated 54 committees “Organisations struggle to stay was being handed the key to were taking up 10,000 manrelevant… we are held hostage by an that the executive washroom. This hours of time. old management model that’s too enduring amalgam of hierarchy By the early 1990s, as the incremental, uninspiring and inert” speed of change in business and autonomy, which the US management expert Gary Hamel environments quickened – with called “a mash-up of military even once-safe markets becoming command and control and industrialisation”, has proved more volatile – autocratic, bureaucratic and sclerotic highly resilient, even though it did have obvious flaws. organisations began to appear rather vulnerable. Some The most glaring was the reliance on the commander management theorists called for shorter chains in control. After Walter P Chrysler died in 1940, executives of command and flatter, horizontal management at the car giant he had created were so lost they tried to structures. The internet made the case for change even contact the tycoon through a séance. With an elite – more compelling. sometimes as small as one – in charge of strategic As Hamel said recently at a conference: “There is direction, it was hard for companies to change. It took 20 nothing that has been more disruptive over the past years for Henry Ford to recognise that the American couple of decades than technology. After that change, motorist wanted something more than the Model T Ford, most organisations have struggled to stay relevant. by which point he had handed General Motors a Innovation and passion drive performance, yet we are competitive edge it has never lost. held hostage by an old management model that’s too The other brake on change was the bureaucracy these incremental, uninspiring and inert.” organisations created. While the right hand needed to Zoe Spicer, an HR consultant who teaches at Ashridge know what the left hand was doing, and that processes Management Centre, believes that speed is driving new were being followed, bureaucratisation acquired a models. Old-school, top-down management, which “made momentum of its own. Managers arrived, followed by all the decisions,, ruled the roost and woe betide you if you E

THE POWDER KEG DuPont made its name as a gunpowder manufacturer. But when the market stalled post-World War I, it diversiﬁed, creating autonomous divisions that reported to head office. By the 1960s, this ‘M-form’ model had become the default structure for large companies.

THE EAST INDIAMAN With a complex overseas trade, burgeoning bureaucracy and a rule that every employee should sign in every 15 minutes, the East India Company was the prototypical modern corporation. Key documents took ﬁve months to arrive by boat.

did something that hadn’t been approved by 10 levels less security. Software company Intuit has predicted that above”, she argues, is fast becoming obsolete, replaced by 2020, 40 per cent of the US workforce will be by a more collaborative, decentralised decision-making contractors and freelances. This shift isn’t entirely driven business model. by technology. Using contractors and freelancers helps For Hamel, the logical outcome is for management to big organisations save money and outsource risk. be distributed throughout the organisation, a development The casualisation of work is forcing millions of people he hailed in a 2011 Harvard Business Review article to contemplate new career paths. Even those who aspire entitled First, let’s fire all the managers. However, others to work in a big organisation will have different believe changing their roles might be more valuable. expectations to cubicle-dwelling Dilberts. A PwC study Steve Denning, author of The Leader’s Guide to Radical of 40,000 of its employees found that millennials (born Management, suggests educating managers to become between 1980 and 1995) saw work as a “thing” not a “enablers of self-managing teams and networks, rather “place”, and didn’t want it spilling into the rest of their than controllers of individuals”, whose authority rests on lives. The qualities they prized – teamwork, transparency, competence rather than job title. Whether we fire or stimulation – are not the kind created in old-school change managers, Spicer says the organisations, where employees old school isn’t coming back any are measured on how many time soon, because “the new hours they put in, widgets they “You are seeing quite a lot of generation of leaders have only or forms they process. experimentation. Companies are make ever worked this way”. Does all this mean that the using collaboration to join up Through facilitating remote world’s corporate behemoths are their employees” working, crowdsourcing and destined for extinction? Or that open innovation, technology can their obsolete organisational liberate millions from their models will die with them? Not frenzied, cubicle-shaped working lives and create new quite. Many big businesses will disappear, yet others will models of organisation. Take Massachusetts open endure. “People have been saying for years that it is the innovation company InnoCentive, which asks its end of large organisations,” argues Lynda Gratton, an community of 300,000 ‘Solvers’ to handle problems expert on management theory who teaches at London pitched by ‘Seekers’ (some of which have included big Business School, explaining that they are already adapting names like NASA, Procter & Gamble and Dow in order to survive. “You are seeing quite a lot of AgroSciences). Founded in 2001, it generates around $10 experimentation,” she says, “Companies are using million in revenue with successful Solvers typically collaborative technology to join up their employees and awarded between $10,000 and $100,000. help them share information.” The transformative impact of the internet is being In Gratton’s view “leadership is used much more to heightened by social and economic changes. The old work through the strategy and vision, and if you can get Fordian relationship between employer and employee – peers to work together, especially if they are working in which workers agreed to do a boring job in return for across countries, that’s an incredibly productive lifelong security – began to erode in the 1970s and was relationship”. These peers will probably include what shattered by the recent, protracted global recession. Gratton calls “an ecosystem of providers” who, as it is busin Today’s workforce, especially in the UK and North now cheaperr and easier to start a business, prefer to vice to a large company than to t work in one. America, enjoys significantly more freedom, yet much provide a service

THE USS ENTERPRISE The bridge on the Star Trek ship reﬂected creator

THE SUIT After the Plague (1665) and the Great Fire (1666), Charles II

Gene Roddenberry’s vision, but was more than science ﬁction: the non-hierarchical decision-making forum was emulated in real workplaces, notably the war room at the US National Security Agency.

ordered his courtiers to dress with appropriate austerity in simple tunics, shirts and breeches. A sign of social status, the sombre three-piece look laid the basis for the modern business suit.

the end of the organisation

In this more diff use, distributed world, knowledge has to be shared (rather than hoarded as a source of power, as it was in the past), opinions heard and relationships finessed. Yet this does not signify the demise of hierarchies. “Psychologically, we are pretty hierarchical and like to know where we stand in a team,” says Gratton. In future, though, hierarchies may be less rigid. Spicer recalls that when she was working for a tech firm recently, the boss began coding when the department was shortstaffed. Instead of a distant decision-maker hiding behind the nameplate on his (closed) office door, “he is considered part of the team. The new leaders I work with are hands-on and in the nitty-gritty.” But few bosses are quite as involved as Jeff Bezos. Amazon’s founder and CEO has a public email address (jeff@amazon.com) and forwards customer complaints to relevant employees with the addition of a single character: a question mark. His rebukes to staff – “I’m sorry, did I take my stupid pills today?” being one of the mildest – suggest that there are some intriguing continuities between the new economy and the oldschool, command and control corporation. In fact, with Amazon handing its warehouse pickers and packers sat nav devices to ensure they cover at least 15 miles a day, this poster child for the new economy has given a new technological twist to Taylor’s stopwatch school of scientific management. Yet this is probably the point. The dichotomy between old and new models of organisation, management structures and leadership styles is seldom as clear cut as management theorists might suggest. If anything, the distinctions are likely to become more blurred. Ksenia Zheltoukhova, a CIPD research adviser who specialises in leadership, says that different structures will suit different functions. Flatter structures could work for sales and marketing, where a free exchange of views is traditionally encouraged, but something more rigid may be best for manufacturing. Companies will need to understand when to adopt which approach. “One

Few bosses get quite so involved with their staff as Amazon CEO Jeff Bezos

of the key characteristics of business in the future will be this agility, or adaptability, to combine different forms of organising,” says Zheltoukhova. HR directors must take the lead here. “We often hear that the challenge to organisational agility is in backward organisational structures or processes. People blame hierarchy or say there are a lot of rigid structures,” says Zheltoukhova. In future, companies – and their HR departments – may stand or fall on their ability “to identify the areas of the business in which different structures might work.” This may not amount to the rip-it-up-and-startagain corporate revolution Hamel is urging, but the era when big companies dominated because they were big – their economies of scale giving them a sustained competitive advantage – is drawing to a close. Seven out of 10 companies on the Fortune 1,000 list in 2003 vanished in the next decade. In an era when many organisations are struggling to cope with the disruptive power of digital technology, Gratton says: “Leaders must constantly acknowledge that their companies are subject to an onslaught of destabilising forces. Being vigilant and observant about the nature and velocity of these forces is crucial.” Start-ups will have a wide array of models to choose from. Some will choose to be holocracies, others will be cooperatives, many will form networks. And more of the world’s biggest companies will follow GE’s lead, study these new approaches and reconﬁgure their businesses accordingly. To quote novelist William Gibson: “The E future is here – it’s just not very evenly distributed.”

THE ELEVATOR Elisha Otis’s invention of the hoist system in 1852 made

THE ICE PICK Old-school paternalism solidifed the employer-employee

elevators far safer and was integral to the skyscraper boom: imagine how much time staff would have wasted if they’d had to climb the stairs in New York’s 50-ﬂoor Metropolitan Life Insurance Tower.

contract, exempliﬁed by the company town. Kiruna in Lapland was carved from the ice in 1900 because LKAB wanted to mine the rich seams of ore nearby and needed somewhere to house workers.

“BRING YOUR BABY IN IF YOU LIKE… JUST GET RESULTS” Reinventing business isn’t the exclusive preserve of academics. Work. visits four organisations who’ve dared to be different THE RADICAL INDIVIDUALISTS

Words: Paul Glader, Cathryn Newbery

MATT BLACK SYSTEMS, POOLE, UK Andrew Holm and Julian Wilson can’t be considered ‘normal’ company co-founders and co-directors. There’s no 2025 strategic vision, finance function, product development plan or list of prospects to target. “We have four responsibilities,” says Holm. “Banker, landlord, business design and branding. That’s it. Responsibility for everything else rests with our staff.” The pair have turned Matt Black Systems’ (MBS) inconspicuous office on a drab Dorset industrial estate into a hotbed for entrepreneurial talent, and a test arena for radical organisational design. Each of its 12 employees is responsible for running their ‘own’ business, from designing, manufacturing and delivering aerospace and defence components, to taking charge of buying and stock control, complying with contracts and regulations, and running an individual profit and loss account. If their businesses turn a profit, it is split equally between: a personal bonus (on top of an already respectable basic salary); reinvestment into their own projects; tax; dues owed to MBS for rent, services and capital interest; and margin for Holm and Wilson themselves. “Many people told us this would never work,” says Wilson. “But the company’s performance against each of our measurable criteria – quality, delivery, profitability and compliance – has improved dramatically.” The MBS concept was driven by the problems the business was facing competing against global rivals who could make the same components at a lower cost. “The only way to survive was to build specialist, bespoke products, and provide higher-value services, such as end-to-end management of the manufacturing process on behalf of our clients,” says Wilson. To offer this more complex and comprehensive service, Holm and Wilson realised they needed to employ a different type of worker: “changers and creators” rather than followers. They concluded the only way to succeed was to devolve all responsibility to the individual. “It 20

created supplier-customer relationships between staff,” explains Wilson, “and made us have to deal with the costs of those relationships. We cut the cost of a purchase order by 90 per cent, so employees could buy expertise from each other without it being a financial burden on the whole business. The transition was chaos. Things got progressively worse as existing employees became less comfortable with the pace of change, and new employees struggled to fit with the interim culture.” The business struggled financially, too, as employees gained experience of managing their own cash flows and stocks. “Now, our buying performance far exceeds what we did when we bought centrally,” says Wilson. “People told us that we wouldn’t be able to achieve economies of scale, but of course staff will discuss their needs and combine their buying power.” Today, MBS is thriving. Before the structural change, around 17 per cent of products were delivered on time and in full. These days, it’s more like 98 per cent. Quality has vastly improved too, with returns standing at less than 1 per cent. “We used to have 30 people turn over £1.5 million a year, which is comparable with the industry average,” says Holm. “Now, we have 12 people who turn over £2 million. Profitability has improved hugely, and we’re in a position to grow, but from a completely different direction.” This growth is very much in employees’ hands. They decide what business avenues to pursue. “Achieving something like this wouldn’t be possible in a larger, multinational environment,” says Holm. “The management simply would not put it in place. Once you have created a business structure, either consciously or unconsciously, it is incredibly difficult – and expensive – to change it to something else.”

THE MANAGERLESS WORKPLACE GENERAL ELECTRIC, NORTH CAROLINA, US With growing productivity and some of the highest quality standards in the global airline industry, General Electric’s North Carolina plant is ﬂying, thanks to a

the end of the organisation

Matt Black Systems’ 12 ‘changers’ and ‘creators’ turn over £2 million

Menlo’s joyseekers generate $5 million in revenue annually

GE’s lean teamers are growing productivity and raising standards

Enspiral’s social collective runs a string of successful ventures

WORKING PRACTICE Doing things differently (clockwise from top left): one of Matt Black’s ‘business owners’; a GE Durham lean worker; and two of Menlo Innovations’ pair-programmers

highly innovative way of working. When UK native Alan Kelly joined the aircraft engine assembly plant as manager in 2013, he was intrigued by its efforts at lean management, which he’d spent hours studying during the interview process. Unlike a more traditional set up with the “office on the top floor of a facility”, Kelly had no office at all and his desk was in the middle of the shop floor. He was also the only manager in charge of 400 people. “It was a huge adjustment,” he admits. Kelly’s lack of managerial support was due to the plant’s use of a lean workplace technique called ‘teaming’, a self-directed work structure where employees participate in management decisions and have a stake in the success of the plant wherever possible. Several plants across GE Aviation have introduced a teaming environment over the past 30 years, and it differs wildly from traditional aviation plants. “There is an expectation that a technician is very flexible,” says Kelly. “Rather than focusing on one part of the engine and becoming an expert, here in Durham the technician is expected to learn about the whole engine, be able to transfer from one working location to another, and sometimes handle several products.” Across Kelly’s 19 teams, senior employees often mentor newer workers, and members from each team rotate tasks and sit on 11 inter-team committees for the plant in categories such as people, processes, quality, health and wellness. Teams have their own personalities, taking on nicknames such as ‘Kodiak’, ‘Summit’ and ‘Frontier’. They compete against each other in softball leagues, community work, exercises or fishing tournaments. The men and women “are proud of being part of their teams”, Kelly says. But what about disagreements within or between groups? “We make sure everyone on the team has a voice and work through any challenge,” Kelly says. Not everyone necessarily agrees, but each member of the team can live with the decision. The key word is consensus. The positive reaction from staff to the teaming approach means that when new jobs open at the plant, Kelly sees applications roll in from across the country. 22

And he says the teams have no problems integrating new workers, because new recruits are only added when teams request additional resources and make a business case for it. But the innovative approach isn’t just about making employees happy and driving recruitment. The plant shipped 2,100 engines in 2013 and expects to ship 2,260 this year as a sign of its ongoing productivity growth. Meanwhile, production quality is among the highest in the industry and within GE. Because of the success of its teaming plants, GE is taking the practices to others within GE Aviation, citing increased productivity, better ﬂexibility, lower costs and stronger competitiveness. Rick Kennedy, a spokesman for GE Aviation in Cincinnati, says two thirds of the GE Aviation production plants now do some form of teaming. And three new factories being built will follow the concept.

THE OPEN SOURCE OFFICE ENSPIRAL, WELLINGTON, NEW ZEALAND In 2009, Joshua Vial, founder of software development social enterprise network Enspiral, was running a technology consultancy. Now, the small, socially minded collective of software contractors he established has grown into 12 social enterprises and more than 150 people. Each is based around a digital innovation that creates value for society – from enabling local food distribution to collaborative decision-making. Enspiral has no management structure: decisions about strategy, ventures and funding are made collectively. “We decentralise money, information and control,” says Vial. “When you rely on rich information systems to coordinate and organise together, you just don’t need as many layers of direction as other organisations.” Enspiral depends on consensus decision-making to function, through its own open-source, collaborative tool, Loomio. It’s used to decide everything from the biggest ideas that affect all members – such as setting the network’s overarching goals – to the smallest details of a complex project that concern just a few people.

Ben Roberts, Menlo Innovations, Jim R. Bounds/Bloomberg News/Getty Images, Joseph Michael

the end of the organisation

“Enspiral is a science lab. We can experiment with working together for a few days at a time before rotating processes in a way other organisations might not be able to a new partner. This is a working practice known as to, due to the risks associated with failure,” says Alanna ‘pair programming’ and is one of many at Menlo that Krause, one of Loomio’s co-founders. “Our culture co-founder Richard Sheridan says contribute to the embraces the entrepreneurial spirit, where failure is chief aim of the small firm: happiness. common, and viewed positively.” This open way of working inspires an openness with The network’s most recent experiment is Co-Budget, legal documents, financial results, hiring, promoting bespoke software that facilitates internal crowdfunding. and firing of employees, and even the disclosure of Any member of the Enspiral Foundation – which oversees salary grades. Menlo has 13-minute morning meetings the network’s funding, strategy and legal compliance – where all 50 staffers stand in a circle and rapidly update can propose a new project that needs finance. Member each other on projects as they pass around an upsidecompanies choose which projects to fund. If a project’s down plastic Viking helmet. The company also uses a funded, it’s started. Enspiral estimates Co-Budget has simple tactile project management system on a wall, helped to cut fixed staff costs by 80 per cent. involving sticky dots and colourful note cards. “You don’t need to look like Enspiral to use Co-Budget, What’s more, there are no bosses. “We want to make nor Loomio,” says Vial. “They work for anyone who is sure the team is making decisions,” says Sheridan. “That’s part of a committee or group that wants to make a where we get the buy-in. We have many leaders. But we decision.” Sharing innovations is key to Enspiral’s mission. don’t have people anointed with authority.” “We are all here with a big value around positive social One yellow sign in the office reads: ‘Caution: babies and impact. We can’t have an impact if we only talk to each dogs crossing’. That’s because Menlo allows workers to other and use stuff internally,” says Krause. bring their dogs and newborns to the office. Dogs are As projects have matured, core Enspiral members permitted because, “quite frankly, we think it adds to the such as Vial have been able to let go of their roles and joy”, says Sheridan. Babies are allowed because seven years take up new opportunities in the network. Vial is ago, one worker didn’t have day care options. Sheridan told adamant this reflects the her: “Just bring her in to work.” network’s strength, and adds to As vice president of R&D at “We want to make sure the team Interface Systems in the late it. “One of the critical metrics for is making decisions. We have me is: how many people would 1990s, Sheridan hired consultant need to disappear for Enspiral to James Goebel to teach his team many leaders, but we don’t have fail?” he says. “If it’s just one, “object-oriented programming”. any anointed with authority” then that’s a weak network. If it’s But the pair started talking about 50, that’s a stronger community.” radical concepts beyond technical The diversity of opinions and experiences within the skills. They pulled team members out of cubicles and put network – and ties of shared values and common aims to them in an open space. As the tech bubble burst in 2001, ‘do good’ – are what makes the network and its ventures Sheridan and Goebel found themselves laid off and ready successful, say Vial and Krause. They see more growth to start up on their own. As they launched Menlo and expansion ahead for Enspiral, but not at the expense Innovations, their ideas became more radical . of doing things the right way. Menlo’s unorthodox practices drew at least 2,500 “Enspiral’s priority is to nurture relationships between visiting executives last year to study the model that its members,” says Vial. “If we lost our businesses, money Sheridan outlined in a book called Joy Inc: How we Built a and intellectual property overnight, we’d still have this Workplace People Love, and which he speaks about at fantastic group of people and those relationships so we conferences around the world. “Other companies could could build it again quickly. If we lose the relationships, experiment with these techniques,” Sheridan says. “It we’ll destroy everything we have and could create.” might be difficult to change the 10,000-person business to this way of working. But it doesn’t mean you couldn’t change a 50-person department within that company.” THE PLEASURE SEEKERS Two key things strike people when they visit Menlo. MENLO INNOVATIONS, MICHIGAN, US “One is the philosophy of openness, collaboration and teams,” says Sheridan. “The second is a focus on positive Some people live to work, others work to live, but those human energy around a team. Those are natural laws of at Menlo Innovations work for the love of it. Or rather, business. When you embrace them, your team does the business based in downtown Ann Arbor, Michigan, better. When you violate them, your team does worse.” has creating joy among its workforce as one if its key And so far, it seems, the Menlo model is working: the functions, along with software development. company has brought in around $5 million in revenue in In a spacious office in the basement of a parking each of the past three years. garage, Menlo’s group of 50 computer scientists sit at For further reading, see page 76 PCs taking turns tapping out code on keyboards, 23

Research has shown that primates will react to situations they consider unfair â&#x20AC;&#x201C; a theme explored in Dawn of the Planet of the Apes

fairness

WE ONLY WANT WHAT’S OURS

Uzo Oleh

Our sense of fairness is so ingrained into our psyche that we share the instinct with monkeys, writes Morice Mendoza. But who said work had to be fair? IN DAWN OF THE PLANET OF THE APES, one of this year’s movie blockbusters, man is once again pitted against his fellow primate on the big screen. Audiences, however, may not know that the two species share one surprising instinct that goes back eons: a sense of fairness. In 2003, US scientists led by biology student Sarah Brosnan at Atlanta’s Emory University conducted an experiment on Capuchin monkeys that, the National Geographic reported, revealed “the human desire for equity has an evolutionary basis”. In the experiment, the monkeys were divided into pairs and encouraged to hand over a small granite rock in exchange for food rewards. In some cases, one monkey was deliberately rewarded unfairly in comparison to a partner that received better food for the same amount of effort or for not doing any work at all. The result was that some of the primates who witnessed this treatment refused to do any more swaps and even threw their food E rewards at their handlers.

More recently a research paper, The Sunny Side of and his colleagues were “doing God’s work”. “We Fairness by Golnaz Tabibnia, Ajay Satpute and Matthew help companies to grow by helping them to raise Lieberman published in Psychological Science in 2007, capital. Companies that grow, create wealth. This, in showed that the human brain has an instinctive response turn, allows people to have jobs that create more to fairness. Their research, which used MRI scans to growth and more wealth. We have a social purpose,” monitor the reaction of the brain to a money-sharing he is reported as saying. experiment, concluded that there was a direct link In a sense, Blankfein is correct. There is a justification between fairness and happiness, processed in parts of for extraordinary rewards and it is known as tournament the brain associated with reward. theory, which according to The Changing Contours of Wilson Wong, head of insight and futures at the Fairness, says that “as long as the high performance of CIPD, is exploring this phenomenon in the work context individuals striving for the next ‘prize’ boosts the overall as part of a three-year project, in conjunction with the performance of the firm (increases the size of the cake University of Lancaster’s Centre for Performance-Led for all), they are entitled to a greater distribution”. HR (CPHR) and the Work Foundation. In the first Tournament theory, according to the report, sits within study, The Changing Contours of Fairness, the ‘principles of outcome’, one of several published in November 2013, the families of lenses through which we judge implications for employers were clear, fairness. That there are six families of TOP FIVE TRIGGERS says Wong, pointing to a “relationship lenses in the report only goes to underline OF UNFAIRNESS IN between perceptions of unfairness and a crucial issue when it comes to fairness THE UK WORKPLACE employer advocacy, job satisfaction and – what one person perceives as just, turnover intention”. another may view as entirely the opposite. But why should organisations start Take corporate tax avoidance, for Pay thinking about fairness now if, as the instance, an issue that rouses ire among Frozen salaries‚ long hours‚ senior management research suggests, it has always been part the general public more than most. Apple remuneration‚ pay differentials of the human psyche? Wong concedes based its international headquarters in that in a feel-good period it might not be Dublin where tax incentives were part of Workload so pertinent, but today, he says, large the package and, according to a European wealth gaps – as well as fundamental Amount of work and distribution Commission report, paid just 3.7 per cent changes in the employment deal such as tax on non-US profits of $31 billion in Bullying less job security and diminishing pension 2013. Starbucks, despite having a major Victimisation and harassment payouts – make fairness highly relevant presence in the UK, was found to have to people’s lives. paid UK corporation tax just once in 13 Favouritism “In the past few years we have had years. Both companies maintain they did rising unemployment, stagnant wages Singling out individuals for special not break the law, so in that sense you treatment and rewards above and job losses, and a lot of what we took could argue their actions were fair. others for no particular reason for granted in the boom years – rising However, as Wong asked in a recent talk, standards of living and job security – was were the companies morally right? Redundancy shaken,” he says. Against this wider world of perceived Forcibly making people Of course, one of the biggest perceived unfairness, employees have their own redundant‚ inadequate injustices of recent times is the return of a more personal gripes. Some 41 per cent compensation plutocracy. According to the French of British employees surveyed in the economist Thomas Piketty, author of the Source: CIPD Employee Outlook Survey CIPD’s Spring 2013 Employee Outlook best-selling Capital in the Twenty-First survey said they felt something had been Century, at the turn of the millennium the top 10 per unfair in their professional life over the previous year. cent of the richest people in the US owned around 45 to Of the sample of around 2,000 employees, 59 per cent 50 per cent of the country’s wealth – a situation not believed that rules and agreed procedures were not experienced since the early part of the 20th century. applied consistently by decision-makers, 49 per cent And, as Chrystia Freeland, author of Plutocrats: The Rise reported that rewards were not distributed fairly, of the New Global Super-Rich and the Fall of Everyone 48 per cent felt that resources were not distributed Else, notes, the combined riches of just two individuals fairly and 49 per cent felt the basis for policies designed – Bill Gates and Warren Buffett – are equivalent to the to make decisions fairer were not clear to most of wealth of the bottom 40 per cent of the US population. the employees affected. Both Gates and Buffett are well-known for their “Employers are constantly concerned about these philanthropy, but elsewhere others have fuelled the issues, because they don’t want to lose good staff. It can flames of injustice. Take Lloyd Blankfein, the head affect your employer brand and the kind of people who of Goldman Sachs. Having earned a staggering $68 apply for jobs with you,” says Wong, adding: “If you’re million in 2007, he later told The Sunday Times that he not happy and you’re not engaged with your work, that’s 26

fairness

HOW WOULD YOU FEEL? Work. ﬁnds out what’s unfair in the workplace We asked a group of Lancaster University Management School alumni to choose whether they found certain work practices either fair or unfair. Below is their sliding scale of unfairness MOST UNFAIR

88.5% Implementing tax avoidance measures if staff pay overall increases as a result

88.3% Positively discriminating for underrepresented groups during the recruitment process

83.1% Contributing company funds to political parties

81.8%

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Bill Gates (right) and Warren Buffett offset plutocracy with philanthropy

not sustainable. When you make a judgment that your employer is being unfair, that has an effect on productivity, engagement, a sense of belonging and commitment to the organisation’s vision. For me, it makes perfect sense to invest some time to understand better what fairness is all about.” Wong believes it is an arena where employers and managers, in particular, can make a real difference. However, he concedes that areas where fairness can be an issue – quality of assignments, questions of compensation and beneﬁts, ﬂexible hours and so on – can be hard topics “to broach with an employer or an employee without it becoming very personal”. His hope is that employers will be encouraged to engage in an open dialogue with staff, discussing decisions they may believe to be unfair. In this context, having a better understanding of the lens through which we judge fairness can be a real advantage, according to Wong. Stephen Moir, director of people transformation and corporate operations for NHS England, agrees. He points to the issue of women in the boardroom, which could be looked at under what the Changing Contours of Fairness report refers to as “capability theory”. This proposes that we all have the innate potential to succeed, but not everyone has the same level of opportunity or resources to do so. Or as the report states: “People are not equally placed to realise their human capabilities, due to barriers arising from structural inequalities of class, race, disability, gender and sexual oppression.” This is an approach that Norway has signed up to. To right the perceived unfairness on its boards, it introduced mandatory quotas in 2008 compelling companies listed on the local stock exchange to have at E least 40 per cent of their boards made up of women.

Carrying out checks on job candidates using social media‚ without asking permission

80.5% The last person in is the ﬁrst out when in comes to redundancy

75.3% Raising the salaries of the lowest paid to the living wage at the expense of a pay rise for all staff

26% Giving the CEO a golden handshake if a company is underperforming

19.5% Fast-tracking women and other underrepresented groups to senior leadership positions

18% Locating the company HQ in low-tax jurisdictions rather than the largest customer markets

10.4% Prioritising training for those with the highest potential to maximise return on investment

10.4% Giving larger pay rises to female staff to address the gender pay gap

5.2% Prioritising ﬂexible working requests from staff with children or other care responsibilities LEAST UNFAIR

Moir thinks this specific area of fairness matters a great deal. “One of the great challenges on the political and societal radar has been fairness in terms of boardroom composition and, in particular, with respect to gender balance,” he says. “For HR professionals, it’s how they engage with board-level appointments, and ensure diversity and fairness considerations are taken into account. Historically, in some private sector organisations, non-executive board appointments are probably less transparent than perhaps might best fit with notions of fairness and equity.” However, Avivah Wittenberg-Cox, the CEO of management consultancy 20-fi rst, makes the point that unfairness in this arena can be a complex issue, highlighting a common organisational blind spot in a recent article. “The majority of large companies have fairly sophisticated ways of evaluating and grooming young talent for leadership and power. The system kicks off for managers in their early 30s. This is the time smart young things are asked to contribute maximum effort, travel anywhere, prove themselves and demonstrate initiative, flexibility and devotion,” she says. “This system of identification is the same for everyone. Men and women are treated scrupulously the same. But if anyone had tried to design a system to eliminate women from the leadership pool, they could not have come up with a more effective tool than that of identifying your future leaders in a window between 30 and 35 years of age. This is exactly the moment in life when most high-achieving, ambitious professional women tend to get married and have children.” Moir considers another contour of fairness – the socially just distribution of goods. “I’m particularly

McDonald’s workers in the US protest over unfair wages in 2013

interested in the whole notion of social justice and the fair distribution of employment and fair employment practices as practiced by society,” he says. “In a number of HR functions, they are moving more into that space where they have a much closer alignment to community and social outcomes. Where I see this happening, for example, is where HR has more of an involvement in subjects such as CSR and has an external focus as well as an internal one.” Discussing fairness in such a broad context, however, can be a challenge for the HR profession, says Professor Paul Sparrow of the University of Lancaster. “HR has been schooled to think about issues of fairness and

THE PITCHFORKS ARE COMING In the gilded cage of the one percenters sit the lucky few at the top of the earnings tree‚ the Roman Abramovichs (right) who have struggled to reach the very summit of society. Here‚ personal equity reaches stratospheric heights, but there are signs the plutocracy is acquiring a conscience‚ or at least experiencing a major reality check. As middle class incomes stagnate‚ journalist and author Chrystia Freeland says the difficulty to rethink is increasing. This is putting pressure on the plutocrats to decide whether they want to be part of the solution or part of the problem. “You are beginning to see an awareness from the people at the top of the pyramid that this is not a sustainable situation‚” she says‚ adding that some of that realisation is motivated by genuine concerns about fairness‚ but also in part by self-interest. What you are seeing‚ she says‚ is some of the one percenters saying that while this might be “great for me‚ if capitalism is not

delivering widely shared rewards it’s not going to be sustainable”. As an example‚ she cites a recent open letter in Politico magazine by internet entrepreneur and early investor in Amazon‚ Nick Hanauer‚ to his fellow “zillionaires”‚ warning that the revolution is coming. “If we don’t do something to ﬁx the glaring inequities in this economy‚” he writes‚ “the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact‚ there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out.”

fairness

THE LENSES OF FAIRNESS The Contours of Fairness report identiﬁes six key areas that inﬂuence a sense of justice in the workplace – each is a different lens through which fairness can be viewed

FAIRNESS AS ORGANISATIONAL JUSTICE This is the most familiar lens to HR professionals‚ as judgements in this area affect various aspects of policy and practice. Includes: Distributive justice For example‚ pay and reward. Is it commensurate with the effort and knowledge put in? Procedural justice Dignity‚ accuracy and legitimacy are key here. Was the procedure respectful‚ accurate and trusted by all parties? Interactional justice Were employees treated fairly?

FAIRNESS AS THE SOCIALLY JUST DISTRIBUTION OF GOODS Used in discussions on executive pay‚ bonuses and rewards‚ industrial relations and social policy. Includes: Rational choice theory/ game theory Assumes people have perfect market information on which to base their decisions and that they aim to achieve the best outcomes for themselves. Justice as fairness Agreeing to a social contract for the welfare of the less well-off.

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FAIRNESS AS THE PRINCIPLES OF OUTCOME Relevant to pay‚ CSR‚ employment law and tribunal mediation‚ apprenticeships and social mobility. Those who exploit their talent and do a good job deserve a proportional reward. But you need to consider if everyone has the means to reach these ends. Tournament theory Fairness of greater reward‚ provided the individual boosts overall performance of the organisation. Luck and due deserts outcomes Assumes individuals can’t control all their outcomes. Fair rewards (and punishments) should be those that are proportionate to people’s actions.

FAIRNESS AS CAPABILITY Concerns social inequalities‚ such as diversity and discrimination‚ as well as issues including child labour‚ wage exploitation‚ fair trade and supply chain standards‚ and social mobility. Based on the view that everyone has innate potential‚ but requires the same access to important resources‚ such as assets‚ income and commodities. Also‚ people are not always equally placed to realise their human capabilities‚ due to barriers such as class‚ race, disability‚ gender and sexual oppression. Fairness calls for equal access to these resources and doing away with structural barriers.

FAIRNESS AS A TEMPORAL PERSPECTIVE Pension funds‚ CSR‚ corporate governance and the long-term viability of the organisation‚ as well as human rights and corporate/ national debt. Inter-generational equity One generation must hand the baton to the next without compromising such principles as constitutional rights‚ access to resources and the chance to beneﬁt from them. Burden-sharing Where development is deﬁned as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

FAIRNESS AS A MATTER OF INTERPRETATION Three areas open to opinion: Equity sensitivity Individuals have different interpretations of justice. Trust theory Expectations of fairness are based on people’s interpretation of reality. Feminist critiques, colonial critiques, Marxist theory Fairness is the product of the way certain dominant groups (consciously or inadvertently) shape the language, frame the issue and consequent interpretation of the issue.

equity in a set way, so the profession is used to ideas of employee voice, issues of procedural justice and so on,” he points out. “That language is something most HR professionals will recognise. Part of the challenge is to say: ‘Look, there are actually different ways to think and talk about fairness in different disciplines.’ It would be useful for HR to acquaint itself with these ideas.” There are, according to University of London professor and author of The Precariat, Guy Standing, other limits to discussions of fairness in an age of labour market flexibility. He uses the term ‘Precariat’ to refer to the body of employees that are most insecure in what he describes as an ever-fragmenting labour market, and believes as many as 40 per cent of the UK workforce won’t necessarily realise how unfair their situation is until they enter a job and compare it to the experiences of others. “If you are a part of the precariat and you have got casual status without benefits, with no prospect of moving up within the corporate operation, you do not appreciate that a whole lot of other people will have a different stream,” he says. “You are only going to begin to feel any resentment when you have found out what’s happening to other workers inside that organisation.” Standing believes that in a world labour Guy Standing: Many of the world’s market that includes growing number of casual workers a growing number of do not realise they are treated fairly casual workers, it’s going to be hard to argue that fairness can be discussed at all. “More and more organisations are contracting out their labour relationship and getting brokers, middle men or employment agencies to take over a large part of their workforce – and they are doing it through off-shoring, outsourcing, etc. You’ve got an increasingly differentiated workforce in many corporations,” he says. “To talk about fairness in that context is to invite people to be very cynical, because a hell of a lot of them don’t feel they are being treated in a way that is dignified or fair.” Nevertheless, there are many compelling business reasons to address the issue. The Corporate Leaders Survey, a groundbreaking 2007 study by The Level Playing Field, estimated that inequity at work costs US employers around $64 billion each year. That kind of sum is surely a very good reason for companies to take a closer look at this thing called fairness. And, who knows, if apes ever do take over the planet, perhaps their innate sense of fairness will mean a less expensive way to navigate their way through such a complex issue. For further reading, see page 76 29

interview

‘‘ EVERY HOUR, WE DELIVER A NEW INNOVATION ’’ Fresh thinking is at the core of everything Siemens does, and as HR director Toby Peyton-Jones tells Tim Smedley, that means understanding where your true talent lies Portrait

ON A RECENT TRIP, while passing through Munich Airport, Toby Peyton-Jones came face-to-face with the future of business. A life-sized projection of a woman looked out at him and said: “Hello.” “Hello,” he replied, a little bemused. “Who are you? Where are you?” The figure was, in fact, a customer-service professional from the Philippines, who enquired after his flight and directed him to the correct gate. “Then I asked her, where do you pay your tax?” recounts the UK HR director of Siemens, from the more familiar confines of the company’s UK headquarters in Surrey. “Here in Germany, or in the Philippines? She kind of lost it after that…” The encounter was a reminder that the boundaries between employer and employee, physical workspace

Andrew Shaylor

and even national borders, are becoming increasingly irrelevant. We are living in a time of blurred lines. And it’s one that Siemens plans to use to its advantage. Siemens’ global CEO, Joe Kaeser, began ringing the changes when he took over the reins of the German technology conglomerate (which employs 362,000 staff worldwide, with 13,760 in the UK) in August last year, after his predecessor, Peter Loescher, was ousted following a spate of proﬁt warnings. In May, Kaeser announced his ‘Vision 2020’ plan to fundamentally restructure the business, which included trimming down the portfolio of 16 divisions to just nine. Previously, the divisions were sub-categorised into four sectors (energy, industry, infrastructure and cities, and E 31

healthcare), as well as regional clusters, but these are now Mergers and acquisitions (M&A) have been central to being done away with, removing two layers of the business Siemens’ success, with a portfolio of businesses described in the process. Customers will now deal with just one as a “living organism”. Until relatively recently, the Siemens, not several. In turn, the company expects to company was best known publicly for mobile phones. make efficiency savings of €1 billion annually. This might Now it is out of this market entirely. Peyton-Jones sound like a lot, but Siemens is a €75.9 billion-revenue remembers visiting a small Danish wind energy firm, business (based on 2013 figures). So this isn’t a case study Bonus Energy, when he worked in M&A in 2004. It was a in austerity. It is rather, says Peyton-Jones, the beginning quirky market and a quirky company. Siemens bought it, of a new way of doing business. and wind energy is now one of its most important sectors. “It is a productivity improvement,” he says. “We’re The company seeks to buy “vertical businesses” – not talking about just doing the same things with less organisations that find out about one market in depth and resource. If you have that conversation, you’re on to create something brilliant. “They have the opposite a complete loser. Vision 2020 is all about smarter ways of problem [to us], which is to diversify. What Siemens can working, redeploying resources and growing by being provide is a place where diversification isn’t a problem,” more successful.” says Peyton-Jones. “Once we have a seed of something The pain of job reduction is a necessity, says Peyton- growing, we will grow it organically. Where we don’t Jones – although the exact number of losses is unclear, have them, we will acquire.” the company confirms the restructuring directly affects The most recent example of this, announced by Kaeser 7,600 jobs worldwide, with another 4,000 “potentially” alongside Vision 2020, was the purchase of Rolls-Royce’s hit. “Everyone thought they had a stake in a decision and aero-derivative gas turbine and compressor business for a stake in the way things were done,” he explains. “So one £785 million. This was intended to strengthen the group’s of the most critical things was to remove those layers and position in decentralised power generation, another fastcreate fewer global divisions that have real synergies.” growth market identified in Vision 2020. But given the This, in turn, will allow Siemens to re-position itself expertise at its disposal (Siemens’ energy business boasts in the market, or “re-promise”, as around 83,500 employees, a 2013 Peyton-Jones puts it. “Businesses revenue of €26.6 billion and and governments want a really underlying profit of €1.9 billion), “You can measure things, but so joined-up approach,” he says. “If why couldn’t the company just what? If it’s not driving actions, you’re a Boris Johnson, you want develop such technology and you can spend a lot of money a company that can not only take expertise internally? “Why would care of transportation, but also you do that?” responds Peytonwithout getting anywhere” fit buildings, traffic control and Jones. “It has taken years for hospitals. It becomes much easier Rolls-Royce to become a leader in to have a conversation with one organisation than with this field. To catch up would be virtually impossible. many.” This integration is intended to herald internal Engineering on the scale that we do has got quite high improvements too, with greater communication across barriers to entry. The core competence doesn’t become divisions and reduced duplication of effort. the technology, it becomes how fast you can make it.” Vision 2020, as its name suggests, also looks to the Not that Siemens doesn’t take internal innovation future. The software and vertical IT systems market, for seriously. Every day the company delivers more than 20 example, is projected to almost double from €56 billion in inventions – nearly one an hour. When it recently found 2012 to €100 billion by 2020. Offshore wind power (of a way to replace the wind turbine gearbox with a directwhich Siemens already makes the turbines for up to 80 drive mechanism, it changed the entire market. per cent of the UK market) is expected to grow by 18 per “A whole load of skills – the gearbox guys and girls – cent in the same period. became redundant, but we created new jobs in direct “It’s very important that we get these long-term issues drive,” says Peyton-Jones. “It becomes not just an HR on the table,” says Peyton-Jones. “The stock market is task, but a business task to develop that pipeline of talent.” beginning to recognise that [quarterly reporting] may not Much of this is achieved through redeployment and be the best way of driving shareholder value. The penny is retraining. Mobile phone engineers, for instance, have dropping. If you have the wrong macro indicators at the been retrained and still work for the company. top, you drive the wrong behaviour further down.” Unsurprisingly for a technology company, keeping There are, he believes, better indicators of success. “If track of such movements is increasingly done via HR customer satisfaction is dropping, it may not have an effect dashboards. But numbers can only give you half the story. on this year’s results, but it’s going to go off the cliff the “If you want to understand analytics, you have to really year after,” he says. “That’s high on the board’s agenda.” look at how technology is transforming the workplace The market, however, hasn’t quite caught up. This July, and how the world of work is changing,” says PeytonKaeser had to go before financial analysts to defend a Jones, who is both a commissioner for the UK Commission third-quarter profit fall of 6 per cent in the energy business. for Employment and Skills and an advocate of the CIPD’s 32

interview

Siemens stays at the cutting edge by acquiring companies with fresh thinking and young talent

Valuing Your Talent initiative (see page 74). “You can measure it, but so what? If it doesn’t drive actions, if it’s not in a context of something bigger that you want to achieve, you can spend a lot of money without really getting anywhere. You need to think about what your business plan is, what you are trying to achieve. Then you can start to pick out things you absolutely must have on your dashboard at that point in time.” Gathering the data with which to do this need not be onerous, he says. Employee attitude surveys, for instance, can now be comprised of “a quick email where you just click a smiley”. External data sets are also waiting to be explored, but here too boundaries are blurring. Even who you consider your current and future employees to be is no longer a hard and fast notion. “We have always done talent management and succession planning internally,” says Peyton-Jones. “But today, if you look at LinkedIn – and everyone in our business is on LinkedIn – then why would our successors be inside the company and not outside? Why would our talent management just include our own employees?” He doesn’t yet have all the answers. His team have dipped their toes in the water by tracking alumni talent. “You can look at someone moving on as a secondment to another company,” he says. And he believes this has great

potential. “We have a low turnover rate [circa 5 per cent],” he adds, “so it’s actually not the most critical topic for us. But I’m sure an IT company, for example, with a 25 per cent turnover rate would like that on their dashboard.” Technology is also having an impact in other areas of HR, with increased automation now seeing employees use an instant messaging ‘live chat’ service to raise issues. Staff pick a topic from a drop-down menu, which takes them through to the right expert for their particular query. Employees prefer it, as queries get answered more quickly, while the HR function has made 20 per cent savings, Peyton-Jones reports. It’s perfectly plausible that before long Siemens’ staff will be talking to a person projected life-sized from thousands of miles away. “You buy your books on Amazon, whereas before you went into a bookshop. You don’t do it because you have to, you could still go to the bookshop. It’s just more convenient,” argues Peyton-Jones. “Most people think work will stay the same, that things will just become more efficient at home.” He stops and laughs. “Why would that be the case?” The future is already here. His job is to capitalise on it now, before it’s too late. For further reading, see page 76 33

creativity

BORN THAT WAY?

Justin de Villeneuve/Getty Images

Neuroscience suggests creativity is innate and we all have it. The conundrum for corporations is how best to bring it out in their people, says Paul Simpson

n the golden days of Hollywood, artists were The Creative Brain (The Atlantic, 2014) – has suggested a always angst ridden, as liable to lop an ear off few tentative conclusions. in a state of existentialist despair as to Creative ideas, be they in arts or science, involve a produce a masterpiece. And when they did network of regions of the brain, but some parts seem to paint, like Kirk Douglas’s Vincent van Gogh be particularly crucial. Part of the right dorsolateral in Lust For Life, they did so in a state of prefrontal cortex seems to correlate with creative frenzy that looked akin to madness. To read ability. The pathways between the temporal and frontal Italian monk Matteo Bandello’s account of lobes can regulate creative expression. watching Leonardo da Vinci painting In simplistic terms, the temporal The Last Supper provides an instructive lobe generates ideas and the frontal lobe THE NOVELIST contrast. True, da Vinci was sometimes controls them. In balance, they help there from dusk till dawn, forgetting to ensure that most of the ideas we generate eat or drink. Yet, Bandello notes: “At are original and useful. For individuals other times he would go for two, three and businesses, quality not quantity is at or four days without touching his the heart of successful creativity. brush, but spending hours in front of The chemical dopamine plays a key, the work, his arms folded, examining if not fully comprehended, role in the and criticising the figures to himself.” brain’s creative workings. Evidence JONATHAN BUCKLEY In other words, da Vinci’s art wasn’t suggests it drives creative motivation The former editorial director of Rough all about that stereotypically blinding and encourages divergent thinking (our Guides, he published his eighth novel, flash of inspiration. He spent almost as ability to see uncommon connections). Nostalgia, in 2013. much time carefully thinking through There is also some consensus that the How would you define creativity? the painting, deducting, analysing and level of a person’s IQ is not directly The act of introducing into the world calculating. And this, a growing body related to creativity, although Andreasen an object or action that has not of research is suggesting, is a much existed, and which enriches the lives of suggests there is a threshold. Those more accurate portrait of how the those who engage with it or observe it. possessing IQs under 120 are less likely Is creativity something creative mind really works. This to think outside the box. One possible people are born with? working for the inspiration, rather than explanation for this threshold is that, It’s an intrinsically human faculty, but simply waiting for it, ameliorates the as Andreasen’s research also suggests, one that decays rapidly if neglected – randomness of creativity, indicating huge numbers of creative geniuses are and is enhanced by regular use. that by developing the right kind of autodidacts and polymaths – as da Vinci Do you have techniques, rituals or disciplines that internal culture and environment, certainly was. encourage creativity? organisations might be able to stimulate For Mark Porter, the designer most A closed door, silence and frequent creative thoughts. famous for overseeing the celebrated large doses of Earl Grey tea. Neuroscience offers some answers, redesign of The Guardian in 2005, this What myth about creativity most irritates you? but because the brain has as many research simply reinforces a long held I find the notion of ‘inspiration’ neurons as there are stars in the Milky conviction. “I firmly believe that we are problematic. Ideas do sometimes Way, it is an understandably incomplete all born creative – anyone with young arrive out of the blue, but those picture. In the 1970s, the idea that the generated while working on a page are, children will back that up. But the right hemisphere controlled creativity, environment has to be right for that in my case, much more durable. When and where are you supported by a few key studies of splitcreativity to flourish. It can be crushed most creative? brain patients, captured the popular by education or work, but in many cases In the morning. And I’ve never written imagination. The relentless appliance of it is always there and can be revived in anything worthwhile anywhere other neuroscience has left that model looking the right conditions.’ than at my desk. a tad simplistic without really giving us Which creative personality have you Daniel Goleman, the bestselling learned most from? a new theory. What we now have is more science writer who studied creativity Artist Giorgio Morandi. His lessons: take nuanced, albeit slightly perplexing. for his recent book Focus: The Hidden great care over everything, be patient If we accept US neurologist Alice River Of Excellence, supports Porter’s and never strive for effect. As a writer, Flaherty’s description of creativity, idea of innate creativity, along with it James Joyce is my gold standard. outlined in the Journal of Comparative being influenced by nurture rather Neurology in 2005 – “a creative idea will be defined as one than nature. “I was intrigued by the research that that is both novel and useful (or influential) in a particular showed we have gone beyond the old idea that you either social setting” – it follows that creativity is not going to be are creative or you are not,” he says. “What we now located in a particular magic spot in our brains. believe is that creativity in the brain is something that, Research by Flaherty and others – notably Rex Jung, to put it simplistically, can be turned off and on.” in Human Brain Mapping, 2010; Hikaru Takeuchi in The switching on and off is not, Goleman cautions, as Neuroimage 2010 and Nancy C Andreasen, in Secrets of mechanical, predictable or repeatable as that E 36

Antonio de Moraes Barros Filho/Getty Images

creativity

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Despite the number of companies complaining about business lost to unethical competitors, the levelling of the playing eld is seen as the most positive benet of

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creativity

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Lacking formal art training, Polly Morgan ADMITS SHE 'DIGESTS' SKILLS from those willing to teach her. Her burgeoning reputation is built on taking taxidermy in a new direction, placing animals in unexpected settings to explore mortality

creativity y

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The 20th century's most famous intellectual, Albert Einstein enjoyed playing the violin more than physics. MUSIC HELPED HIM 'DAYDREAM' and Mozart's work inspired his belief in the ultimate simplicity of the universe

One of the most successful TV series of the 1980s shows how creativity can be as simple as making connections no-one else spots. Miami Vice began with A TWO-WORD MEMO from NBC boss Brandon Tartijoff, reading: "MTV cops"

The world's most celebrated set designer, Es Devlin has worked on the Olympics, opera and Miley Cyrus tours. Her ATTENTION TO DETAIL IS LEGENDARY: every item in her set-ups, no matter how small, is chosen to convey meaning

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creativity

Janis Joplin is now as FAMOUS FOR HER CHAOTIC LIFESTYLE as her music. Like many creative geniuses, she was drawn to New York's Chelsea Hotel, where she had a fling with Leonard Cohen

Photos 12/Alamy

Danish producer Lars von Trier picked up the Palme d'Or for Dancer in the Dark , but his most radical work is 'Dogme' â&#x20AC;&#x201C; a MANIFESTO FOR RETURNING SIMPLICITY to the creative process, credited with bringing The Killing and The Bridge to our screens

creativity

might sound. Yet the notion does offer us some insight do his best work unless he could smell rotten apples. into the mind’s creative workings. “Our ability to French novelist Honoré de Balzac drank 50 cups of concentrate is located in one part of the brain – in the coffee a day – and died of heart failure at 51. Poet prefrontal region – and we learn best with focused laureate Carol Ann Duff y has a more predictable attention, because the stronger our focus, the better our routine – she writes from 10am till 3.30pm in the neural lock-in,” Goleman says. “Focused, goal-driven kitchen with a fountain pen (“I change the colour of attention has value, but the mind’s tendency to wander the ink depending on my mood. If I’m feeling reckless whenever it is left to its own devices can be very fruitful. I’ll turn it to scarlet,” she once said.) That may be why, when the parts of the Allowing your creative team a brain that encourage creativity switch certain flexibility with respect to when, THE POET on, they switch off the part controlling how and where they feel they work best focus. So concentration kills creativity could improve their productivity. – and creativity kills concentration.” Creativity often begins with For many creative people, in observation. Da Vinci obsessively drew whatever discipline they work, the things he saw – and the things he ability to let the mind wander is crucial imagined but didn’t exist – yet his to their success. No one could fault ability to doodle the hours away meant Albert Einstein for not putting in the he rarely finished a project on time. CLAUDIA DAVENTRY hours when he was developing his There comes a time, as even the theory of relativity but he famously The winner of the Bridport Prize for her ultimate Renaissance Man recognised, poem Alkazam is now doing a PhD on claimed: “The gift of fantasy has meant when the doodling has to stop and work translation and poetry. more to me than my talent for absorbing must start. The state of mind that How would you define creativity? positive knowledge.” businesses ideally want their creatives A way of interpreting the world via Artists, scientists and writers have to find was described as “flow”, by something else, which is cognitively devised an ingenious multitude of the Hungarian psychologist Mihaly what separates us from the beasts. techniques for encouraging the mind to Csikszentmihayi in 1990, a phenomenon Is creativity something people are born with? drift off. Walking was the charm for Porter is a firm believer in. It’s innate – we can unlock stifled composers Ludwig van Beethoven, “The flow state does encourage creativity by learning to be less Gustav Mahler and Erik Satie. Pyotr creativity, but you can’t just make it judgmental, more open-minded, Tchaikovsky, the man who gave us the happen,” he says. “That combination less fearful. 1812 Overture, was firmly convinced of concentration, confidence, Do you have techniques, rituals or disciplines that that bad things would happen to him if experience, challenge and suppression encourage creativity? he didn’t walk for exactly two hours of conscious thought cannot be I’m a big fan of cerebral versus a day. Artur Avila, the Brazilian consciously induced, you just have to non-cerebral forms of work, like mathematical wunderkind, has put be sensitive to it and make the most of Charles Bukowski being a postman. What myth about creativity most walking at the heart of his schedule. He it when you feel it. You can’t force irritates you? wakes after midday, and heads to Rio’s creativity when things are not That creative people are mad, beaches to let his mind wander. His working, but if you load the problem disorganised and drunk. My way of collaborators meet him at beachside into your brain and let it gestate, the organising things is mad to some but hotels and bring a swimsuit. So effective solutions often emerge spontaneously not to me, and it may not look tidy, but it works. is this mental wandering that he refuses when you least expect them to.” When and where are you to drive, saying he might become so Delos Cosgrove’s reinvention of the most creative? distracted by mathematical daydreams valve used in open heart surgery is a All the time, except when it’s being he would die in an accident. case in point. In the 1970s, surgeons squeezed out by awful stuff like admin or stress. Others have found that just having used a rigid ring to get the heart valve another job can be a big help, giving the Which creative personality have you back into shape after the operation, but learned most from? mind licence to wander. Beat poet the device wasn’t very effective as it was Many artists and writers have given Charles Bukowski worked as a postman, unable to move with the patient’s tissue. me insights into their creative worlds, while William Carlos Williams never which have had some bearing on mine. Years later, Cosgrove spotted a flexible gave up his medical career, jotting down hoop that 19th–century American poems on his prescription pads. women used for embroidering cloth and realised this For many, it’s all about the time of day. Ernest sewing device could be used to create a valve that moved Hemingway, whose writing routine almost always started with human tissue. Predictably, Cosgrove is a great at 5.30am, said: “There is no one to disturb you and it’s believer in travel and in forcing creatives to collide with cool and cold, you come to work and warm as you write.” new ideas, even if they turn out to be old ones. Some display very different quirks. The German Flow certainly seems to capture that mysterious philosopher Friedrich Spiller famously felt he couldn’t and much sought-after feeling of being in the zone – 45

and sometimes, slightly out of self – that many There’s also the time involved – deadlines can seem creatively gifted people experience. As American like a matter of life and death in some inwardly focused playwright Neil Simon told Andreasen: “I don’t write organisations. And then there’s the random nature of it consciously, it’s as if the muse sits on my shoulder.” all. Who knows how useful the new idea will be? One of One of the most memorable examples of flow – and Goleman’s favourite observations about creativity is the dangers of interrupting a creative when firmly in the from the German philosopher Arthur Schopenhauer: zone – is Samuel Taylor Coleridge’s Kubla Khan. He “Genius hits the target others cannot see.” composed this 300-line poem in an opiate-induced Too often, prototypes are judged as harshly as if they dream in 1797, started writing it down were a final product rather than a sign when he awoke, “was unfortunately pointing in a particular direction. The THE DESIGNER called out by a person on business from other trouble with creativity is that it is Porlock”, as he put it in a letter, and certainly no respecter of hierarchies, when he tried to finish it could only organograms or lines of command. recall a 30-line fragment of what he The management guru Tom Peters had dreamed. “The rest had passed famously suggested that Lockheed’s away like the images on the surface of a Skunkworks, the alias for the stream into which a stone had been aircraft manufacturer’s Advanced cast”. Even incomplete, Kubla Khan is Development Programs (ADP), which MARK FARROW one of the greatest poems in the history created some of the most celebrated The multi award-winning British of English verse, yet the whole episode aircraft designs of the last 50 years, must offer definitive proof of the pitfalls designer whose clients roster includes was so successful primarily because the Pet Shop Boys and John Lewis. of not going with the flow. of the high degree of autonomy and How would you define creativity? Sometimes there just isn’t any flow, a freedom from bureaucracy its crisis organisations have historically At the risk of sounding pretentious, it’s engineers and designers enjoyed. just what I do, I can’t help it. tried to solve with brainstorming As Porter notes: “Creative projects Is creativity something sessions, ice-breaking games and threealways involve clients — either people are born with? martini lunches. An innovative strategy I’m not sure anyone could be trained to independent clients who hire you for a do what I do without there being for creating flow helped David Bowie project, or bosses and leaders within an something in there to start with. make some of the most seminal music of organisation who set you tasks. The Do you have techniques, his career. His Berlin trilogy of albums relationship with the client is the key rituals or disciplines that – Low, Heroes and Lodger, all recorded factor in whether a project succeeds or encourage creativity? Having ‘the idea’ can happen in an in the mid-1970s – owed a lot to his fails. Clients who micromanage the instant, or take an age. I enjoy the collaborator Brian Eno and German process or who have fixed expectations, process either way... usually. composer Peter Schmidt, who had or feel that they could solve the problem What myth about creativity created a strange cure for the creative themselves if they had time, inhibit most irritates you? That it can just be switched block Bowie was experiencing at the creativity. But clients who give you on and off. If only… time. They used a set of cards called space and time, who respect creative When and where are you Oblique Strategies, which contained expertise, and who are open-minded most creative? mysterious messages such as: “Honour about solutions encourage it.” Usually at the start of a new project, thy error as a hidden intention”, derived The emergence of ideas is often especially in a completely new area. from the ancient Chinese book I Ching We once designed the livery of a yacht referred to as a spark or a Eureka! for the Volvo Ocean Race. It was an (Book Of Changes). Most of Heroes was moment, after the apocryphal, tale of entirely different experience. You have actually improvised in the studio, and Archimedes using the water in his to be creative in the extreme, and that Eno said: “One song, Sense Of Doubt, bathtub to test the purity of gold in a made it an outstanding project. was done entirely with the cards.” He Which creative personality have you crown and running naked into the learned most from? and Bowie would each pick a card, streets shouting: “Eureka” (“I found it”). I’ve been inspired and influenced keeping its contents secret, and try to There are two problems with this by many designers. Seeing how add to the song in accordance with the powerful motif. The original moment they approach projects is instruction they received. may never have happened – it was always informative. Although it’s clearly possible to related by Vitruvius, a Roman architect, devise systems to stimulate creativity, flow remains an writer and engineer who lived two centuries after the unpredictable business and this is where, Goleman Greek genius and, sadly, neglected to reveal his sources. warns, companies can discourage the very creativity And if you look at some of the most celebrated moments of they claim to prize. “Part of the process will be getting revelation, you find as much perspiration as inspiration, out of the office, doing something seemingly unrelated, (as discussed by Professor Linda Hill on page 48). even a team social event, but a certain kind of manager Isaac Newton’s discovery of gravity in 1666, so finds this difficult to cope with,” he says. popular mythology has it, was precipitated by a 46

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conveniently falling apple. Yet as Andreasen writes: build an app), the acquisition of a Mac MP3 app, the “The truth is that by 1666, Newton had already spent a recruitment of external expert Tony Fadell, some number of years teaching himself the mathematics of strategic outsourcing, a scroll wheel interface his time (Euclidean geometry, algebra, Cartesian originally created to solve another problem and the coordinates) and inventing calculus, so that he could fi nesse and imagination of Jonathan Ive’s industrial measure planetary orbits and the area under a curve. design group. He continued to work on his theory of gravity, not The iterative development of the iPod is far more completing it until 1687, with the publication of typical of how creativity works in business today, and Philosophioe Naturalis Principia stands in stark contrast to Archimedes’ Mathematica. So instead of a revelation As Goleman explains: “Progress for THE PERCUSSIONIST that strikes Newton in the time it certain innovative challenges demands takes an apple to hit him on the head, a steady steam of small creative insights, it more likely took him a quarter rather than stunning breakthroughs or century of study. grand victories.” Fast forward to 6 July 1954, at Sun “The fetishisation of untrammelled Studios in Memphis. Taking a break creativity is a modern phenomenon after a frustrating recording session, a that I find silly and misleading,” says pimply 19-year-old called Elvis Presley Porter. “So many of the people we think SUDHA picked up a guitar and started clowning of as creative geniuses in the past were The percussionist with dance act around with That’s Alright Mama, a actually doing commercial work for Faithless has developed a shaker that blues song by his idol Arthur Crudup. clients. JS Bach was writing music to generates electricity when played. Startled, producer Sam Phillips stuck order for church or court occasions. How would you define creativity? his neck out of the control booth and Renaissance artists were doing It is a natural expression of life itself said: “What are you doing?” To which paintings for specific locations to that flows through us when we are Elvis, guitarist Scotty Moore and bass specific briefs, and even had contracts clear and open. player Bill Black answered: “We don’t specifying how much paint to use and Is creativity something people are born with? know”. Whatever it was, Phillips told in what colours. If you had asked them We can all learn to develop skills that them, “try to find a place to start and do about creativity, I’m not sure they allow us to access our creative side. it again.” would understand what you were It’s about having the ability to relax or This is arguably the pivotal talking about.” let go of the conscious mind to access moment in the history of popular Surely Porter is right to argue that the space that, as Steve Jobs said, helps us ‘connect experiences and music and the fact that it seemed to it’s time for creatives to look beyond the synthesise new things’. happen almost by accident only makes lone genius cliché. “Creativity is not an Do you have techniques, the myth more appealing. Yet Presley all or nothing phenomenon,” he insists. rituals or disciplines that would never have been able to fool “In my business, I find that it needs to encourage creativity? Meditation. It nurtures my ability to around to such revolutionary effect if be combined with analytical solutions concentrate and focus. It also stops he had not ignored the racial to find the right answers. boundaries that compartmentalised me from clinging to negative thoughts, “I had an academic education and which can impede creative flow. American music at that time, acquired secured a degree from Oxford. But I What myth about creativity an encyclopaedic knowledge of the make my living as a designer by most irritates you? That you have to be a creative type of blues, rehearsed with Moore and combining my creative insights with person to be creative. Black and, after parking his truck rigorous research and logical thought.” When and where are you outside Sun Studios many times, twice For Porter, the bigger challenge is most creative? steeled himself to go in and pay a few for organisations to effectively create Anywhere – it’s more about a state of dollars to cut his own record in order mind than any external situation. That an environment that liberates our said, travelling helps. to catch Phillips’ eye. innate creativity. Only then, he says, In the digital age, the stage- Which creative personality have you “can we maintain a genuinely creative learned most from? managed launch of products such as mindset that gives us the opportunity There are too many to mention. As the Apple iPod, back in October 2001, Einstein said: "Creativity is contagious". to take control of our own futures, encourages us to envisage Eureka rather than being mere victims of our moments in a simplistic way. Yet the development of this environment and conditions.” paradigm-shifting portable music player – the device In other words, all those CEOs who complained that that decisively put Apple on the road to becoming the their company didn’t have an ‘iPhone’ – a game-changing world’s most valuable company – was a tortuous process. creative breakthrough – should ask themselves: are they It all began with the accidental discovery that some really up for the challenge? dormant software, FireWire, could transmit data at incredible speeds, a snub from Adobe (which refused to For further reading, see page 76 47

innovation

The myth of the visionary genius No one said innovating was easy. Harvard Business School professor Linda Hill tells Claire Warren that to create the right environment you need to go against your nature Illustration

IT’S A QUESTION that has been vexing business for decades. Why can some companies continuously come up with new and exciting ideas, while others don’t seem to have the capacity? Employing exceptionally creative people is simply not enough, according to Linda Hill, co-author of Collective Genius, who has carried out research on many of the world’s leading organisations. Innovation, she says, can be an unnatural experience, and creating a culture that is both sufficiently supportive to allow people to share their ideas and confrontational enough to enable breakthrough thinking takes a certain kind of leadership. Traditionally, leaders are expected to be visionaries. How does this work in terms of fostering innovation? There’s certainly a place for the conventional notion that leadership is about being a visionary, but although many of the individuals we studied were visionaries, they did not deﬁne their leadership role that way. Instead, they focus on building an environment in which people are willing and able to innovate. There is this myth about a genius having an ‘aha!’ moment, but most innovation is collaborative. It is often the result of combining old ideas or placing

Richard Walker

old ideas in new contexts. What happens with some startups, for instance, is that the founder has a breakthrough idea, but if you have to continue to build on that individual as opposed to creating an organisation that can routinely innovate, you can see that you sometimes can’t scale these things. Given innovation is emotionally and intellectually taxing, how do you create an environment in which employees are both willing and able? Innovating is hard and it doesn’t always work, so whether or not you feel part of a community determines if you are willing to put in the effort. The ﬁrst part of this is do we have some sense of shared purpose? Every organisation [we studied] also had four values in particular: bold ambition, collaboration, learning and responsibility. There were also implicit rules about how you are supposed to interact with each other – that’s about respect, trust and inﬂuence – and how you are supposed to think. We all understand how hierarchy can get in the way of new ideas, but expertise does too, so nothing is sacred – you are allowed to question anything. You’re supposed to be data-driven, so if it’s E 49

Creative abrasion, as the name suggests, requires people to engage in real debate, confl ict even. Why do some of us find that so hard? Some people are more shy than others, but whether or not we are willing to engage in real debate has a lot to do with what we are taught. Because many people fear conflict, we can miss out on opportunities to truly engage in a healthy debate. We suppress people’s desire to be candid, yet constructive confl ict is essential for creativity and innovation. People have more resilience than we think if they are put in the right environment, but we often forget that when they are being creative they are sharing part of themselves. We need to respect that, and work out how to give them the right kind of feedback. Being afraid to tell people things aren’t good enough can lead to a weaker product or idea. How can you stop the conflict getting out of control? If you had a group of talented and passionate people without a sense of community or who didn’t have these implicit rules, then the conflict could easily get out of hand. But what we find in environments where organisations can innovate is not only do they work on active listening and inquiry, but also help people understand how to advocate their position in a healthy way, present an argument and provide data or evidence to support their point of view. Another rule is not to critique the person, but their ideas. This is very important, because when a situation becomes too confrontational, it’s usually because we are not being respectful of how much of a person’s identity is in their ideas. As a leader, this is when you need to step in and make it safer for people, be supportive and create psychological safety. 50

IBM: A SCHOOL FOR INNOVATIVE LEADERSHIP How altruism can help identify visionary thinkers

While attending an executive education course‚ Steve Kloeblen, business development executive at IBM‚ heard a lecture on business opportunities at the ‘bottom of the pyramid’ and became convinced that this market was a significant opportunity for his company. Kloeblen wrote an email to a dozen young IBMers he was mentoring: “Here’s what I’m thinking‚” it said. “It could be pretty cool to get a little group together and brainstorm on how IBM can find commercially viable ways to use its technology to address issues that affect the bottom of the pyramid.” Most of the recipients were so excited they signed on to work on the project in addition to their day jobs. Word spread virally‚ and in six months‚ the group‚ the World Development Initiative (WDI)‚ had grown to more than 100 volunteers. The WDI held a number of mostly virtual meetings in which it developed a statement of purpose‚ values and norms for working together. The strategic goal was to create a billion dollars in new revenue for IBM‚ while helping to improve the lives of a billion people. They set aggressive one-‚ three- and 10-year targets for revenue and profit‚ and for improving the outcome for the poor at the bottom of the pyramid.

World Development Initiative projects were designed to help those at the ‘bottom of the pyramid’ in developing countries like India

Three years after Kloeblen’s initial email‚ the WDI had grown to over 400 members from dozens of countries. Projects extended from branchless banking for the masses in India to working with an alliance of African universities to improve infrastructure. Not only did many of its projects turn into real growth opportunities for the company, but the WDI also served as a catalyst that inﬂuenced IBM’s business strategy for emerging markets. But that was far from all it achieved. As he saw how WDI was evolving‚ Kloeblen realised he had also uncovered one of the best ways to identify tomorrow’s leaders of innovation. It couldn’t have been simpler or more intuitive: to ﬁnd and develop leaders of innovation‚ create a setting in which potential leaders can make themselves visible and let them go for it. Leadership development happens through real experience with real consequences. Excerpted from Collective Genius (Harvard Business Review Press).

only a hunch, make that clear. What’s more, when you are thinking about a problem, you need to appreciate the whole issue, not just your part. The ‘able’ part is about three capabilities: creative abrasion, creative agility and creative resolution. The ﬁ rst, creative abrasion, is how you create a marketplace of alternatives or ideas, through brainstorming, for example – and for that you need to have diversity [of thought]. Creative agility is about whether you can instigate discovery-driven learning, so can you experiment, get feedback, make the necessary adaptations – and do it quickly enough. Creative resolution relates to how you can integrate disparate ideas, without compromising or letting one dominate, because it is the easiest path to follow. A lot of innovation is about taking ideas that seem opposable and ﬁ nding ways to put them together to come up with a new solution.

Mitch Weiss

innovation

Linda Hill: confrontation is a key part of the innovation process

It’s generally the start-ups that are known for innovation, but can big companies create the environment for this kind of thinking? At HCL Technologies, they talk about everyday innovation and have 90,000 employees. HCL’s headquarters is in India, which is a pretty hierarchical country, but [former CEO] Vineet Nayar decided to focus on getting everyone in the organisation to be innovative. Employees have a lot of voice, there is more transparency than in most businesses, and they also understand the bigger picture. A challenge for large organisations is how to create different space to help people break habits and patterns of interacting. For instance, at Volkswagen, [former chief marketing officer] Luca de Meo brought people together in a very old fashioned way so they were physically together and connecting. But he mostly made them stand and PowerPoint was banned. It was carefully choreographed to encourage employees to have debates in real time, standing at white boards. It can, however, take time for employees to adjust to this way of working.

Can you develop the skills leaders need to drive innovation or should you recruit for them? Warren Bennis, a pioneer of leadership studies, who passed away recently, did lots of research showing leaders are more made than born. You need to develop the right characteristics – figuring out the balance between support and confrontation, for instance, is learned behaviour. Having said that, some of the ‘making’ has happened by the time you take your first job. One of the key things we found was that leaders of innovation were idealistic, but also practical. You can learn to be more idealistic, but it’s no accident that leaders are fairly confident people. At IBM, Steve Kloeblen (see panel) sent an email to some of his proteges asking who wanted to help him build a billion dollars’ worth of profitable business while improving the lives of a billion people. He began to put teams of volunteers together and they came up with all kinds of business ideas. That experience of working in a team on a really hard problem in a very different context is the kind of crucible experience that helps transform how people think. For further reading, see page 76 51

MAKING THE GRADE

Press Association

As technology races ahead and economies develop apace, we can't provide enough talent to keep up. Stefan Stern ponders how we can satisfy the world's voracious appetite for skills

skills

The Australian meat industry is in crisis, with vacancies up 25 per cent in a year

E 53

Another century later we are now entering what has been called The Second Machine Age – the title of an acclaimed book published this year by two US academics, Erik Brynjolfsson and Andrew McAfee. But now the story is different. As the world of work moves on (see page 14), we need rapid-thinking and fast-working employees, who are not only capable of operating the new technology, but are also, crucially, able to learn and adapt quickly. Workers need to be pilots and not merely passengers in this emerging world. A major consequence, however, of the accelerating transition to Brynjolfsson’s and McAfee’s new age seems to be a growing skills crisis – the pace of change, it appears, is rapidly outstripping our ability to upskill the global workforce. But which countries are most affected, and in what areas? In some, shortages are a sign of continuing, rapid economic growth. In Singapore, for example, where the economy expanded by 4.1 per cent last year, finance managers, lawyers, inventory managers and sales administrators feature among the roles needing to be filled, according to recruitment firm Hays. The country also faces a shortage of IT experts to help guard against cybercrime. In recent months, there have been online

Press Association

hat shall we teach our children? It used to be a straightforward question. In the 19th century, facts alone were the ultimate goal. Thomas Gradgrind, the headteacher created by Charles Dickens in Hard Times, published in 1854, is clear on the chief and over-riding purpose of education. “Now, what I want is facts,” he says. “Teach these boys and girls nothing but facts. Facts alone are wanted in life. Plant nothing else, and root out everything else. You can only form the mind of reasoning animals upon facts: nothing else will ever be of any service to them.” In the industrialising world, with managers seeking ever-higher productivity, there did not appear to be much demand for imagination or creativity from employees. Machines were the big fact of life, and apart from those rariﬁed people who built them, ordinary workers just needed to know how to start them up and operate them. This view still prevailed at the start of the 20th century. Work was all about time and motion, and efficiency. A core set of skills would suffice and there was a low ceiling on what was required from most workers.

Japan's airlines have been forced to cancel ﬂights due to a shortage of qualiﬁed pilots

skills

attacks on government websites and security breaches As far as the UK is concerned, the CIPD has been involving companies’ client data. Singapore is not alone arguing that the economy has produced too many lowin suffering in this way, but for a country that remains skilled, low-paid jobs and not enough high-skill, a key financial centre, stability and business continuity high-paid ones. Out of all Organisation for Economic are vital. The state, always a large and controlling Development and Cooperation member countries, the presence in the Singaporean economy, has sought to UK has the highest proportion of low-skilled jobs after attract foreign employees to fill the gaps. Spain, the CIPD points out. Around 22 per cent of jobs in In the UK, the Prince’s Trust reports that almost Britain require no more than primary education, three quarters of British businesses say the country will compared with less than 5 per cent in countries like be facing a severe skills crisis in the next three years. Germany and Sweden. Already, a third of British organisations are experiencing The CIPD has called for the establishment of a UK shortages at entry level, the charity says, while over half Workplace Commission in order “to coordinate policy are unable to fill vacancies. The UK Commission for development across government, and with employers and Employment and Skills (UKCES) has also warned that employee representative bodies”. “This is about better job jobs and skills gaps are threatening economic growth. design and more joined-up government,” Cheese says, One obvious pressure point is in the STEM skills – “something that you have probably seen more of in the science, technology, engineering and maths. The Nordic countries, Chinese cities and Singapore. It is also Institution of Engineering and Technology’s (IET) 2014 about adult learning, reskilling and upskilling to satisfy skills survey found that, according to the more than 400 the demands of a market that changes so quickly.” engineering and IT staff questioned, 59 per cent believe Despite the huge potential workforce it has at its a lack of available engineers will be a threat to their disposal, the US, too, is challenged by skills constraints. business in the coming year. Its economy is growing once again, following the global Lesley Uren, a talent management expert at PA financial crisis, and while many businesses want to Consulting, points out that there was a 16 per cent increase US-based production, a shortage of workers decline across Europe in the with the skills needed for the number of STEM graduates high-tech world could hold them “The UK's immigration policy qualifying between 2009 and back, according to a recent report is keeping out the most highly 2011. Although the situation in by Accenture and the US Britain does appear to be Manufacturing Institute. More skilled… the pool of international particularly worrying, with a third of US companies say talent available has been reduced” than around 100,000 new graduates they face a serious shortage of required every year until 2020, qualified applicants, and 60 per according to the Royal Academy of Engineering, and cent are finding it difficult to hire skilled staff. President only 90,000, including foreign graduates, currently Obama referred to this problem in his 2014 State of the being produced. Union speech. In particular, the US is facing a shortage of “This is an issue everywhere,” Uren says, “and it is not IT specialists, as Microsoft, among other firms, has noted. just engineers we need, but digital experts too. Business is In Malaysia, a ‘brain drain’ of talent is a concern. A looking to operate in an omnichannel way in many sectors 2011 World Bank study suggested that one in 10 skilled – finance, retail, travel, etc. A lack of capability in this Malaysians leaves the country, which is double the digital mindset will hit business hard.” world average. The Associated Chambers of Commerce Peter Cheese, chief executive of the CIPD, is keen to and Industry of India has estimated that Indians emphasise that, while STEM skills are vital, leadership studying abroad cost the country as much as $17 billion (and so-called ‘soft’) talent matters too. “If you look at a year in lost business. Africa, too, loses some of its a fast-growing market like China, that is not a country brightest and best. This talent migration is a global where there has been a long tradition of what you might problem – it may help one country, but it means a loss for call democratic leadership skills,” he says, adding that another. And no one is immune. Even Germany fears the fast-developing Chinese market is going to need losing many of its scientists. this kind of modern leadership rather than simply One country that has historically benefited from all continuing with the old, more directive style. this talent migration is the UK, but policies designed to Other countries have, at times, wrestled quite cut immigration have greatly reduced the international successfully with the challenge of skills shortages. In skills pool available to British business, according to a India, for example, there was a fundamental lack of report by the Oxford-based Migration Observatory. The trade and construction skills, as many skilled workers number of highly skilled European workers coming to were attracted by jobs in the Middle East. “Businesses in the UK fell by 28 per cent between 2007 and 2013, to a India had to work with local government to set up total of 242,000. There has also been a 39 per cent drop technical and training colleges to help build the pool of in hires from outside Europe since the introduction of available talent," says Cheese. immigration policy changes by successive governments. E 55

Employers know they cannot find everyone they need, the actual jobs market and the needs of employers. SSCs in a variety of sectors. Crossrail alone, the vast £16 billion continue their work, but with mixed reviews. engineering project in the heart of London, knows it In short, employers probably have to grasp the nettle needs hundreds more tunnellers and other engineers if it of their skills shortages and take responsibility for solving is to complete construction on time for 2018. Some of them. But central government can, perhaps in the form of these engineers will have to come from abroad if UK a workplace commission as suggested by the CIPD, universities cannot produce enough of them. coordinate activity and monitor business investment Anna Rosso, research fellow at the National Institute more closely. Legislating to make employers invest in for Economic and Social Research, says the UK’s new skills remains a tricky task. immigration policy has made it much harder for If the global economy really is changing in the way students, foreign workers and family members to settle that The Second Machine Age suggests, then a more in the country. “It is keeping out the most highly skilled considered and co-ordinated response to skills shortages and wealthy immigrants through is required, from both businesses and excessive bureaucracy in the processing governments. We need to address both of visa applications, while claiming to WHAT MAKES A LEADER supply and demand, and this work needs to have an open door for them,” she says. be managed carefully. As Mariana These fast-changing and “Moreover, as shown in recent research, Mazzucato, professor in the economics of demanding times call for leadership skills of a high order. the pool of international talent available innovation at the University of Sussex has But what specific skills or to businesses in the UK has been reduced.” argued in her book The Entrepreneurial characteristics are needed? The Japan is also losing key skill sets, but State, without genuine, coordinated state search firm Egon Zehnder says this is more about its ageing population intervention and support, the private four key qualities mark out than migration. The country is struggling sector is so often unable to deliver. leaders and potential leaders: to replace skilled retirees. Consider the The future remains a mystery. Business Curiosity airline industry. Pilots take some time to commentator Jeremy Warner summed up A penchant for seeking out new train, and starting salaries are not thrilling. the situation well in The Daily Telegraph experiences, knowledge and But Japanese airlines find themselves recently, writing: “It will be a long time candid feedback. Openness to cancelling flights due to staff shortages. before we know for sure where the jobs of learning and change Last year, there were 5,686 qualified pilots the future are going to come from, or how Insight working in Japan, with more than 7,000 easy they will be to access. In the meantime, new ones needed over the next eight years. if you have high technical, engineering or The ability to gather and make sense of information that What can governments do to help managerial skills, you’ll do well. If you suggests new possibilities avoid the build-up of skills shortages? have none of these things, you’ll be Free-market economists have long been progressively squeezed, with growing Engagement sceptical of politicians’ (or officials’) competition for scarcer, low-skill work.” A knack for using emotion and ability to ‘pick winners’, whether in logic to communicate persuasive The CIPD’s Cheese agrees, adding industrial sectors or in specific categories that leadership skills “are arguably harder vision and connect with people of skill development. In the UK, there has to develop and possibly even more Determination been a long and not always happy history important than technical skills”. The wherewithal to fight for of government interventions in the We have come a long way, then, from difficult goals, despite training market, and a rather confusing Mr Gradgrind’s Victorian classroom challenges, and to bounce back cocktail of different qualifications and where only facts would do. Or have we? In from adversity intermediate institutions – TECs, LECs, August, Eton headteacher Tony Little the LSC, GNVQs and the rest. Training declared the British exam system levies designed to ‘encourage’ (or rather force) employers “unimaginative” and “archaic”, adding that the league to invest in their staff have also had a mixed track record. tables that measure exam results are misleading. In 2003, the then secretary of state for education, The narrowness of the British education system, Charles Clarke, published a white paper called 21st driven by the desire to pass exams, is failing to prepare Century Skills – Realising Our Potential. This was a young people for adulthood, Little said. Ours is an thorough, lucid and well-argued plan to tackle UK skills approach “little changed from Victorian times, which shortages. It called, in particular, for the development of obliges students to sit alone at their desks in preparation so-called Sector Skills Councils (SSCs) – industry-based for a world in which, for much of the time, they will need and demand-led organisations that would help to to work collaboratively”. co-ordinate employers and employees, matching training So does this mean that soft skills are coming too, needs, existing employees and business requirements. even to the fortunate young students at Eton? If so, times Employers' organisations welcomed this approach. really are changing. E However, a decade later what do we see? Continued agonising over the gaps between vocational training and For further reading, see page 76 56

Press Association

skills

Employers in some markets struggle to ďŹ nd workers who are willing to do dirty jobs

WHERE IS EVERYONE? Work. trawls the globe to map the most pressing skills shortages

GERMANY A health employer’s union in Berlin is tackling a predicted shortage of 500‚000 nurses by 2030 by recruiting staff from China.

CANADA Reports estimate that 25 per cent of Canadian miners will be eligible for retirement in 2023.

US A 2014 report attributes an annual loss of $1.4 billion in farm income to labour shortages.

UK It could take 20 years to address the UK’s cybersecurity skills gap; a new Open University course hopes to inspire 200,000 people to take up the challenge.

PERCENTAGE OF EMPLOYERS STRUGGLING TO FILL VACANCIES Japan Peru India Argentina Brazil New Zealand Colombia Hong Kong Israel Hungary Mexico Austria Greece Australia Germany US Global average Italy Poland Sweden Canada China France Belgium UK Netherlands Spain Ireland

BRAZIL High demand for qualiﬁed professionals – especially in infrastructure, oil and gas – but supply is low.

81% 67% 64% 63% 63% 59% 57% 56% 49% 45% 44% 42% 42% 41% 40% 40% 36% 34% 33% 33% 31% 24% 21% 13% 12% 5% 3% 2%

Source: Manpower 2014 Talent Shortage Survey

SOUTH AFRICA

CHILE Retailers ﬁnd it hard to recruit skilled and unskilled staff; workers are attracted to higher wages in the mining sector.

COUNTRIES WITH ABOVE-AVERAGE OVER-QUALIFICATION FOR JOBS Japan England/N. Ireland Australia Ireland Canada Estonia Germany Spain Average

31.1% 29.9% 27.8% 27.2% 26.8% 26.5% 23.2% 21.7% 21.4%

Adcorp reported in February 2014 that 470,000 private sector vacancies could be ﬁlled if applicants had the right skills.

Source: OECD Skills Outlook 2013. Figures for countries above OECD average

skills

COUNTRIES WITH ABOVE-AVERAGE UNDER-QUALIFICATION FOR JOBS Italy Sweden Netherlands Ireland Norway Canada Finland Austria Australia Average

RUSSIA

22.4% 21.2% 17.6% 15.7% 15.2% 14.7% 14.3% 14.1% 13.9% 12.9%

An inﬂexible education system is harming potential for future growth and causing wages to rise.

Source: OECD Skills Outlook

CHINA In 2000, China had 22 million 18-yearolds entering the workforce; this shrunk to 15 million in 2010.

JAPAN In April 2014, labour shortages caused 123 branches of the chain restaurant Sukiya to close on a single day.

INDIA Millions of construction workers have left to work in the oil-rich Middle East.

AFRICA In 2013‚ there were more Ethiopian doctors in Chicago than in Ethiopia itself.

AUSTRALIA One in three butchers reported no suitable applicants for vacancies advertised in 2013. 68% 58%

21%

41% 40% 16%

South Korea

13% 6% 1%

29%

Sweden

Germany

6% 3%

20% 17%

12% 6%

3% 1%

France

Italy

36%

52%

55%

60-64 female 65+ female

34%

21% 13%

13%

Japan

Press Association

28%

44%

47%

55%

71%

60-64 male 65+ male

70%

LEVEL OF OLDER PEOPLE IN THE WORKFORCE

Source: Mercer & Global Agenda Council (data from Data Book International Comparison 2013 JILPT)

non-executive directors

‘‘ PRETTY, BUT OF NO PRACTICAL USE ’’ TINY ROWLAND

Peter Macdiarmid/Getty Images

Business leaders have traditionally been sniffily dismissive of non-execs. But as Jane Simms discovers, the role has never been more demanding

Former athlete Dame Kelly Holmes is one of several non-execs with sporting backgrounds

Sports Illustrated/Getty Images

amously referred to as a “bauble on a Christmas tree” by tycoon Tiny Rowland, non-executive directors have also been rather disparagingly likened to garnish, pigeons and bidets. However, cycles of business collapse and governance reform over the past 25 years have ensured the jokes that suggest the UK’s non-execs are mere ornaments, add-ons or luxuries serving no practical purpose have long since dried up. As Sir Bryan Nicholson, former chairman of the Financial Reporting Council, put it in a recent interview: “The days of turning up for a quick hour and a good lunch are long gone.” Corporate governance in the UK took off in the early 1990s in the wake of business scandals like the collapse of stock market darling Polly Peck International. The 1992 Cadbury Report recommended, among other things, separating the chair and CEO roles, and gave rise to what is now the UK Corporate Governance Code. In the years since, there have been a slew of reviews strengthening the role of the non-exec, but back then the position and its responsibilities were neither fully understood nor taken seriously. Today, it couldn’t be more different, with non-execs coming under intense media and shareholder scrutiny, as Dame Alison Carnwath found in 2012 while chairing Barclays’ remuneration committee (remco). Now chair of Land Securities, she came under fire for her role in approving the bonus of then chief executive Bob Diamond, even though, as she later pointed out, she was the only board member to argue against the payment. But it’s not just the profile of non-execs that has changed. Although governance is still important, those who take on the role are increasingly expected to contribute to business strategy. The most recent Life in the Boardroom survey from search firms Directorbank and Hanson Green found that, currently, a non-executive director’s ability to constructively challenge and help 62

develop proposals on strategy outweighed their other functions by a hefty margin. This shift has major implications for the background, skills and requirements of the role. Rather than reaching automatically for a list of the great and good, organisations are now thinking more carefully about the composition of their boards. Not only do they need people who are prepared to contribute the considerable time and effort the role demands (an average of just over two days a month per position, according to Life in the Boardroom), but they are also trying to banish the traditional ‘male, pale and stale’ stereotype that contributed to the groupthink phenomenon some blame for the banking crisis and subsequent recession. Certain companies have been thinking outside the box for a while with respect to getting the most from their non-executives. Take Admiral Group. Lucy Kellaway, management columnist on The Financial Times, has been a non-exec at the insurance provider for the past eight years. Her skill in spotting and ridiculing corporate waffle must make her an invaluable member of the board (even if you suspect some colleagues might nervously scan her published work lest they end up being lampooned). Retired newsreader Anna Ford occupies the same role at clothes retailer N Brown, having stepped down from the board of J Sainsbury in 2012, while Sarah Brown, wife of former Prime Minister Gordon Brown, is a non-exec at Harrods. Sports personalities, too, appear to be in demand as non-executive directors. Olympic gold medallist Dame Kelly Holmes was welcomed to the board of TUI Education, a division of the FTSE-100 travel giant TUI Travel, in 2011. Holmes is using her sporting and military physical training background to help TUI further its work providing educational and gap-year trips for young people. Elsewhere, however, it seems that old practices die hard. New research from executive search ﬁrm Harvey

€905,647

non-executive directors

WHAT IS A NON-EXEC WORTH? Median basic board fees of non-executive directors in selected European countries

€457,153 €77,666 UK

€207,400 Switzerland

€176,372

€57,450

Sweden

€80,280

€42,804

Norway

€80,000

€50,000

Netherlands

€50,000

€355,000 Italy

€77,500

Germany

€285,000 €23,000 France

€88,000

€43,875

Finland

€78,500

€30,000

Belgium

€30,000

Austria

€15,000

Non-executive director

€187,500

Non-executive chair

Nash indicates finance remains the dominant profession Martin. “Head of remco used to be an easy deal, with not among non-execs, with disciplines like HR, sales and much risk. Since the financial crisis brought the issue of marketing, IT and logistics barely getting a look in. In a pay into sharp relief, organisations want people who have sense this is unsurprising, says Kit Bingham, partner and been closely involved with it in their day jobs.” head of the chair and non-executive director practice at A slower, but more profound change, continues Odgers Berndtson. “The number of executives on boards Martin, is the growing interest in talent, which is is much smaller these days – it might be only the “increasingly seen as a key lever in maximising the CEO and CFO,” he explains. “So potential of the business”. As non-financial non-executives are HR is the functional discipline “Boards are too dominated by seen as potentially high risk. where women are arguably best People with broad business and represented at the most senior finance people in the UK. It’s P&L functional experience are different in the US and Germany” level, hiring a human resources felt to be most likely to hit the director as a non-exec often ground running.” ticks the gender diversity box John Longworth, director-general of the British too. This nascent demand is good news for ambitious Chambers of Commerce (BCC) and an experienced non- HR professionals who have set their sights on an exec, believes this “massive conservatism at board level” executive board role, particularly if they work in a could be dangerous. “Boards are too dominated by company that actively encourages its execs to seek nonfinance people in the UK,” he says. “Big corporations fail executive directorships in other organisations. because they become sclerotic. It’s very different in “A non-executive role is a great way to develop, the US and Germany, where traders and engineers, motivate and keep high flyers, especially at a time when it respectively, tend to run the companies. These countries might be difficult to offer them other training,” says have a more dynamic corporate sector as a consequence.” Hanson Green founding director Peter Waine. But What’s more, the Harvey Nash survey points to a positioning yourself as an ‘HR specialist’ is not the way to stark mismatch between the skillsets on boards and the secure such a role, caution the experts. challenges organisations face. When asked about the “You have to rethink your USP,” says Julie Towers, current issues exercising boards, corporate governance, managing director, recruitment solutions at Penna. risk and delivering strategy were closely followed by “Most organisations already have strong HR skills at organisational capability, corporate reputation and brand, board or executive level. What they need is an along with the impact of digital innovation. independent, objective, business-oriented adviser who But there are signs that business is waking up to the doesn’t want to dabble in HR. When going for an limitations of an exclusive focus on finance skills. James executive role, your professional skills lead. What’s most Martin, a partner and head of the HR practice at Egon important in a non-executive role is whether you can Zehnder London, says that over the past two or three translate what you do into shareholder value, govern years he has started to see a strong appetite from clients well and stay out of the weeds.” for leading HR professionals to act as non-execs. One Craig McCoy is currently interim head of HR at the reason is the increasing scrutiny of executive pay, says Crown Estate, as well as a non-exec and head of the E 63

remco at Kent Commercial Services. He says he is expected to make a broader commercial contribution on top of his core skill, and believes that “lots of HR professionals are far too anchored in the ‘people’ speciﬁcation to be able to do that”. The best non-executives bring something extra to the table beyond ﬁnancial, commercial and general management experience. While “a good board isn’t a parliamentary democracy”, as Odgers Berndtson’s Bingham puts it, at the very least it needs one member to act as ‘the voice of the consumer’ and another as ‘the voice of the employee’, according to Mike Sommers, former marketing director of TSB and Prudential and now a non-executive at an NHS Trust. “Seeing the nonexec role as largely about protecting shareholders’

short-term interests is dangerous, because it means customers and employees get done over,” he says. “Where was the voice of the consumer in the banks’ decision to try to sell PPI to every third customer? That kind of practice is still going on.” Technology is another area that can dent corporate reputations, and one where non-execs perceive the biggest skills gap. “The risk profile of organisations is dominated by costly data failures of all sorts, from confidentiality breaches to customer service breakdowns, and you need someone who understands the pitfalls and can see through the bullshit,” says Sommers. Marks & Spencer pulled off a significant coup by appointing LastMinute.com founder (and the UK’s former ‘digital champion’) Martha Lane Fox to its board

THE BENEFITS OF BEING IN THE BOARDROOM ANGELA WILLIAMS, HR director UK and Ireland for global facilities management company Sodexo, holds three non-executive roles: at the not-for-proﬁt Central and Cecil Housing Trust, at Berkshire Healthcare Foundation Trust and at the private equity-backed company First Care. She says the roles complement each other and her executive

Getty Images, Press Association, Rex Features

position, explaining that she had specific motivations – a mixture of learning, career development and ‘giving something back’ – for taking on each one. Williams got her first non-exec job while HR director at Land Securities, and learned much from her own board, including Alison Carnwath, Sir Win Bischoff, Sir Stuart Rose and Lord Myners. “They were all experienced non-execs,” she says. “I watched, listened, attended remco meetings, got involved in nominations committees – it was a deliberate acquisition of knowledge.” She also joined the Institute of Directors to learn about governance, attends board forums to share experiences with others, and seeks feedback on her own contribution from members of boards on which she sits. “It’s active learning,” she says, adding that Sodexo encourages its people to find such roles. “But we also link it into our executive and senior management development.”

Today’s non-execs come from a range of backgrounds, such as (clockwise from top left): Labour peer Lord Hutton, former newsreader Anna Ford, former CEO of BP Lord Browne, Experian chair Don Robert , Sodexo HR director UK and Ireland Angela Williams, and dotcom pioneer Martha Lane Fox

non-executive directors

seven years ago, at 34 – a tender age when nearly 70 per rush to sort it out,” Williams observes. “So you have to cent of non-executives are over 56 and nearly a third try to get into their mindset – but not too much, because between 46 and 55, according to Harvey Nash. they do need challenging.” Although specialist knowledge is an advantage, While the best non-executives are ferociously well sometimes ignorance can be a non-executive’s best organised, you can’t hold down several big jobs without weapon – if they only realised it, adds Sommers. “Most making sacrifices. “I read board papers on a Sunday are not prepared to confess ignorance, but if you don’t afternoon, answer emails day and night, and am always understand something, you have to keep asking available to support the executives when things go questions until you do,” he says. “If you still don’t wrong,” says Williams. She makes sure that she keeps up understand it, that’s when you should smell a rat.” to date with news, politics and any legislative changes Of all a non-exec’s functions, arguably striking the affecting her sectors, and admits that being a non-exec right balance between challenge and support is the “is not for the faint-hearted”. toughest. On the one hand you need to be what BCC’s And it’s not going to get any easier. As Egon Zhender’s Longworth describes as “the grit in the oyster”, but on Martin points out: “The level of work and diligence the other being confrontational can make executives required to be a non-exec can be extraordinary, and if clam up. You also need to be robust in order to challenge you already have a challenging executive role, it makes it firmly where appropriate and resist capitulating to very hard to do a non-executive job properly.” group-think. “Outliers are usually ridiculed until the Four non-executive directorships or chairmanships moment they are proved right,” he says. Indeed, being a are the maximum, according to Andrew Kakabadse, non-executive director is widely viewed to be far more professor of governance and leadership at Henley difficult than an executive. First, there’s the need to Business School. Hanson Green’s Waine thinks even chew through copious quantities of data and paperwork. that may be too many. “The balloon could go up at any “Risk assessment and corporate responsibility are time in any one of your companies, then it’s all hands to much bigger than they were five years ago, and you have the pump,” he says. But if the time and commitment to work much harder at keeping up with the legislative involved in being a non-exec are increasing, pay has not framework and the compliance areas, which are a lot risen commensurately. Some think it should, but others more complicated,” says John Hughes, chairman of plcs believe higher pay would compromise the independence TelecityGroup, Just Eat, Spectris that is so valuable in the role. and Sepura. “It’s not unusual to see a non“Non-execs’ growing involvement exec paid £50,000 or more a Then there’s the inevitable culture shock that even the most in strategy blurs the line between year, and however much you seasoned non-executive director earn elsewhere or have earned them and the executives” can experience on a new board. in the past, that’s the kind of sum Louise Redmond, former HR you learn to rely on,” says Waine. director of the Bank of England and experienced nonSo is the current non-exec system unsustainable? exec, says the biggest challenge she faces is working out The time/risk/reward ratio already appears to be offwhere she can best contribute. “You need a voice on the kilter, and is likely to become increasingly so with board, so you have to decide what subject you are going mounting legislative and compliance issues – not to to speak on. However, initially you don’t know when to mention expanding globalisation. Waine says the speak,” she explains, adding that it is important not to be answer is to simplify the role. “Companies expect too put off or intimidated by the executives. much of the role,” he claims. “The functional input “They have an answer to everything, which they often should come largely from the executives, who ought to frame in beautifully convincing language,” Redmond be up to speed on the latest thinking. Non-executives’ says. “You may sometimes feel ‘lectured’, but if the growing involvement in strategy is not only time answers are not what you’re looking for, you have to be consuming, but also blurs the line between them and tenacious.” Ironically, just as you get to know the company the executives.” and “feel like you belong”, she says, you have to leave. In the meantime, aspiring non-execs should think Corporate governance codes suggest non-execs who do carefully before taking the plunge. As Williams points more than two- to three-year terms risk ‘going native’. out, people who quit because they can’t hack it will have The public sector has its own challenges. Angela a credibility problem. For similar reasons, do thorough Williams, HR director UK and Ireland for global facilities due diligence on the financial position of the company management firm Sodexo, is also a non-exec at three you are thinking of joining. “It may be flattering to be organisations, including a housing trust and an NHS offered one of these jobs, but you have to think about the foundation trust (see panel, left). She admits she can get damage to your own reputation and brand if things go frustrated by the different priorities in the public sector. pear-shaped,” she concludes. “You might find that the numbers don’t add up, or For further reading, see page 76 that employee absence is too high and they seem in no 65

BUSINESS RESEARCH, REPORTS AND INSIGHT

E RI

LEADERSHIP DEVELOPMENT

To help redress the balance of power, the report advises companies to be aware of the challenges a highly narcissistic CEO might bring – no matter how competent and inspiring they are. Also, a CEO’s grip can be eased “by making boards more involved in decision-making through How taming the boss’s ego can improve business performance committees or appointing a lead director to coordinate members’ ecision-making can be Chen and Zhu’s research suggests actions to present a united front”. undermined by a chief highly narcissistic CEOs are more Finally, Chen and Zhu advise executive who is too self-focused likely to be influenced by companies CEOs to be aware of their and egotistical, which can prove they have worked in narcissistic tendencies “A CEO’s grip on disastrous for a business, according previously rather than and urge them to power can be eased compensate by taking to the report CEO Narcissism and the drawing on the broader by making boards their fellow directors’ Impact of Interlocks on Corporate experience and Strategy. The study by Guoli Chen, knowledge of their board. more involved in opinions into account. decision-making” But they warn that it is INSEAD assistant professor of “Results showed CEOs strategy, and David H Zhu, assistant whose narcissism was one yet to be proven whether professor of management, both at standard deviation above the mean CEO narcissism can be moderated Arizona State University, analyses were five times more likely than an over time by this self-awareness. the way narcissistic CEOs behave average CEO to be influenced by and found them so blinkered by their own experience,” says the The report: their own experiences that they report. “Meanwhile, a CEO whose • Examined 300 companies on the disregard the valuable advice of narcissism was a half standard 1995 Fortune 500 list between 1997 those around them. deviation higher than average was and 2006. Highly narcissistic people are likely to demonstrate superiority by • Calculated the number of times the excessively confident about their adopting corporate strategies directly CEO’s photograph was featured in judgement and ability to learn from opposite to what other directors’ annual reports and their experience, says the report. Usually prior experience would suggest.” prominence in press releases. bestowed with plenty of charm, they rise swiftly through the ranks to positions of power and influence. Researchers Chen and Zhu say this can damage corporate strategy, as the views of other experienced senior executives tend to be disregarded by such characters. “Firms are especially likely to imitate the practices of companies to which their board has interlocks or ties,” say Chen and Zhu. “Copying what other companies do gives their decisions legitimacy and reduces the cost of search and experimentation. The more interlocks a board has, the greater the wealth of experience it brings when making tough decisions. When CEOs fail to use this combined experience, they can substantially undermine the comprehensiveness of strategic Donald Trump epitomises the egotistical style of many business leaders decision-making.”

The perils of the narcissistic CEO

Press Association

• Noted the cash and non-cash compensation of the CEO relative to other top executives of the ﬁrm. • Found that there was a huge degree of variance between CEOs studied. bit.ly/CEOnarcissism

CORPORATE GIVING

Philanthropy as strategy, not charity Is charitable activity being used as a smokescreen by businesses?

he growing corporate trend of making charitable donations can cause companies to lose sight of their “bigger” responsibilities to staff, society and the environment, according to a new Charities Aid Foundation report. Presenting evidence at the launch of the Parliamentary Inquiry on Growing Giving, Soushiant Zanganehpour, consultant at the Skoll Centre for Social Entreneurship, Saïd Business School, University of Oxford, praised companies for charitable behaviour. However, he stressed that an enlightened approach to business strategy is of greater importance. “Making it easier and more enjoyable for staff to give to charity in the workplace – through payroll giving, group fund-raising, or company-sponsored volunteering – can promote staff engagement and, obviously, channel more funds to charities. It has many beneﬁts and is to be applauded,” he said. “However, by placing too great an emphasis on charitable giving by employees, I think we are in danger of letting companies off the hook in terms of their bigger responsibilities – for example, to pay employees a fair

wage, to source materials responsibly, and to consider the environmental and societal impact of their actions.” Zanganehpour argued that the more innovative philanthropic organisations are strategy-driven rather than motivated to give through obligation. He cited Novartis, PwC, EY and Accenture as examples, saying they have all created ways for employees to use their skills meaningfully on various projects. “This is 21st-century thinking, and I appreciate that it will take time for policy and more traditional organisations to catch up,” said Zanganehpour. “Having opened the discussion with this parliamentary inquiry, I hope that policymakers and businesses will begin to make progress with the real questions on the table, which are about the role of business in society.” bit.ly/corporategiving

LEARNING AND DEVELOPMENT

Challenging training Emotional experiences help to boost learning retention

eople retain more information in emotionally charged training environments, due to the body’s physiological response to challenging situations, researchers have conﬁrmed. Ashridge Business School carried out a study to discover whether a type of ‘muscle memory’ could be developed for learning through challenges, and if this could help leaders to cope more effectively when confronted by difficult situations. In their report, The Neuroscience of Leadership Development:

Preparing Through Experience, the researchers cite findings by Ellis and Davidi (2005) among others, which state that negative emotions are particularly important for learning, as opposed to simply recalling something. When encountering failure, they explain, existing mental models are revised, which is not the case with success, where the individual may become increasingly sure, or even complacent, about what they already believe. Over two days, 28 participants on two versions of Ashridge Business School’s The Leadership Experience were fitted with heart monitors to measure the difference between their resting heart rate overnight and their maximum heart rate during the programme’s critical incidents – or difference is heart rate (DHR). The researchers wanted to find out whether the programme was inducing the sympathetic nervous response and to see if this was related to learning. Stress causes the body to be in a state of arousal by fi ring up the sympathetic nervous system. This optimises cognitive performance, unless the individual believes they have insufficient resources to meet the challenge. In the latter situation, blood flows to the extremities rather than the brain to facilitate a ‘fight or flight’ response, impairing cognitive performance. The findings reveal that there are “significant correlations between DHR during the simulated critical incidents and perceived learning, which were unrelated to personality type”. The report concludes that such findings have implications for business schools and learning and development professionals, suggesting that experiences which challenge leaders are likely to deliver longer-lasting results. E bit.ly/learningchallenge 67

INFORMATION MANAGEMENT

Guarding reputations in a digital world Companies should see online data as an opportunity, not a risk

he way information is handled online can have a major impact on the reputations of businesses and governments, according to a combined study by the Saïd Business School at the University of Oxford, and the University of San Diego School of Law. In their white paper, How Reputations Are Won and Lost in Modern Information Markets, the researchers explore the inﬂuence of information networks, from why they breed extreme views to their positive and negative social potential. The report also asks who owns your reputation online and their key inﬂuences, while examining the herding mentality of ratings websites and how their supposedly honest reviews can lie. “The effects of information networks and 21st-century instant communication work in surprising and often counter-intuitive ways,” explains Rupert Younger, director of the Oxford University Centre for Corporate Reputation at Saïd Business School. “These can distort markets and damage the reputation and health of businesses and governments. However, they also provide particular challenges and opportunities in terms of how reputations can be created, sustained and rebuilt.” The increased number of stakeholders that must be considered leads organisations to focus on risk management rather than opportunity, particularly 68

Herd mentality: The tendency to follow the crowd affects ratings websites’ accuracy

when it comes to social media, says the report, which makes the following recommendations: • Encourage public-private engagement: Government organisations should formalise relationships with private sector groups to study how technology can be harnessed, while being transparent and self-policed. This could be achieved through focus groups, polling and consultation to help rebuild trust and increase engagement with society at large. • Manage the information cycle: Business leaders and government should create public-private teams, including media representatives, to help manage the accelerating information cycle, which can have a significant impact on reputation and cause problems for policymakers. • Support financial literacy: Public and private sector education must be related to core financial issues. The UK and US governments should use simple, clear language and technology to explain how basic financial constructs work. Without a knowledge of economics, policy responses are likely to be poor.

• Counteract biases: Research in the US shows that herding behaviour makes people lean towards giving positive reviews on consumer rating sites, leading to misinformation. The public needs to be aware of this and there should be a counterweight to the views. Policymakers should also create safeguards to prevent the misuse of power among information intermediaries. • Invest in tools that encourage a desire to do good: Businesses are beginning to recognise they have responsibilities to help people to act as a force for good. Policies should be introduced to support this behaviour, which will help restore trust between business leaders, employees, politicians and the public. Business leaders should consider embedding a culture of humanity in mission statements, while tax incentives and other initiatives should be used to encourage companies to drive social goals. • Encourage ‘Yes, and’ rather than ‘Yes, but’: Businesses should focus on the opportunities that an increased number of stakeholders bring rather than simply the risks.

Alamy, Getty Images

R EB

White paper focus points: • Technology: The effects of the speed at which information is disseminated. • Stakeholder plurality: The challenges of addressing growing stakeholder audiences with conﬂicting agendas. • Polarisation: Why the market in information encourages extreme viewpoints. bit.ly/digitaldata

WOMEN IN BUSINESS

Men rule the boardroom in Singapore The Asian state is lagging behind in the gender diversity stakes

he small proportion of female business leaders in Singapore compared to other countries in the region has been highlighted by a recent study. Women hold fewer board positions in the Asian state than in Indonesia, Malaysia, China, Hong Kong and Australia, according to The Singapore Board Diversity Report 2013: Time for Women to Rise, by Dr Marleen Dieleman, Dr Meijun Qian and Muhammad Ibrahim at the National University of Singapore (NUS). Researchers examined 677 businesses listed on the Singapore stock exchange (SDX) ﬁnding that, at the time, just 7.9 per cent of board members were women. This compared poorly with the state’s regional peers, such as China (9 per cent), Hong Kong (9.4 per cent), Indonesia (11.6 per cent) and Malaysia (8.7 per cent). The report described the pace of change in gender diversity in the country as “glacial”, concluding

that it would take more than a directorships that were held by decade for Singapore to catch up women were non-executive with the region’s more gender(19.9 per cent) and independent diverse countries such as Australia (27.5 per cent). Men often held (15.8 per cent), particularly without non-executive directorships. any regulatory intervention to “The difference between male hasten progress. and female directors was In this, the third and latest particularly striking,” notes the report in a series, the researchers report. “It seemed to suggest believe that, having flagged up that women made their careers the situation in the past, “it is inside fi rms, taking on executive imperative for companies to roles and moving up the ladder translate this awareness into vertically. Men, on the other action and consider increasing the hand, often ended up in nondiversity of boards in general and executive roles and were in terms of gender in particular.” more likely to have multiple The issue is one that the directorships, suggesting a more government does take seriously, lateral career development.” having set up a Diversity Task The NUS also carried out Force in 2012 which launched an empirical analysis of the its own report in April 2014. Gender relationship between the proportion Diversity on Boards: A Business of female directors and a firm’s Imperative recommended a slew of performance. It revealed that initiatives to encourage employers greater gender diversity had a to appoint more women to their positive effect when measured by boards, but it opted against gender return on assets (ROA) and return quotas for directors. on equity (ROE), although not on According to the NUS research, market value. There was also countries where the government a positive relationship between has taken a proactive approach, gender diversity and corporate E such as Malaysia and Australia, have made notable gains in board diversity, but still trail behind the the Nordic nations, which hold the top three places in a table of global board representation of women. In Norway, the leading nation in boardroom gender diversity, 40.9 per cent of board members are female, with the UK figure standing at 17.3 per cent (now 21.6 per cent for the FTSE 100). In Singapore, almost half of women on boards – 49 per cent – held executive directorships. This compared to just 34.9 per cent of the directorships Ho Kwon Ping, executive chair of Banyan Tree Holdings, which has a relatively high ratio of women on its board held by men. Other 69

governance quality. “There is a range of tools available to accelerate change,” state the researchers. “The easiest of these would be to require companies to report on board diversity targets and progress towards these targets annually, therefore putting the topic on the board’s agenda and forcing it to measure diversity and take action. “Furthermore, lessons from countries that score higher in the gender diversity rankings and from the more gender-diverse companies suggest that other factors matter too – such as including mentoring programmes, tailored education, national or corporate policies addressing work-life issues and an inclusive and supportive corporate culture.” Ho Kwon Ping, the executive chairman at successful Singaporean business Banyan Tree Holdings, which was ranked the third most gender-diverse SGX-listed company, highlights the drawbacks of Singapore’s low female representation in the boardroom. “Without more women at senior levels in business,” he explains, “Singapore is not getting a sufficient contribution from some of our most able people, nor is it getting the full breadth of input to critical business discussions and decisions.” A summary of the key ﬁndings of The Singapore Board Diversity Report 2013: • Out of every 100 board directors in SGX-listed companies, only eight are women. • Fewer than ﬁve per cent of CEOs or chairmen are women. • On average, female directors are younger (51 years old) than their male counterparts (57 years old). • Six in every 10 boards are all-male. • Women and men have about the same average directorship tenure of 8.5 years. bit.ly/womeninsingapore

BUSINESS FINANCE

Supporting SMEs’ growth potential The funding problems facing small businesses in the UK

he UK’s high-growth small and medium-sized enterprises (SMEs) are helping to drive the recovery by providing the bulk of new jobs, yet are being held back by a lack of access to finance. So much so that it has become a priority for the government. But how can we ensure companies achieve their growth potential, and is this finance gap damaging the economy? These are two questions addressed in a new study Funding Issues Confronting High-Growth SMEs in the UK by Dr Ross Brown of the School of Management, University of St Andrews, and Dr Neil Lee, assistant professor of economic geography, London School of Economics. High-growth SMEs tend to be financed by banks rather than through raising equity, and

although they are nine per cent more likely to apply for finance than other small businesses, their success rate is the same. They are also reluctant to give up equity in exchange for finance, which may hold them back from expanding, preferring to grow using internal finance, which they spend relatively cautiously, and through making acquisitions, state the authors. “Entrepreneurs were often resistant to outside intervention in their businesses and were against the idea of borrowing, even to fund growth,” they observe. “Rather than being ‘discouraged borrowers’ because they believe they would be turned down, many firms are in fact highly ‘reluctant borrowers’ who are just unwilling to borrow. “One of the main factors behind this reluctance was the fear of banks or other lenders having too much control over their business, such as having the ability to alter or re-negotiate lending conditions.” In general, access to finance has tended to be offered to new firms, rather than those already in existence that have growth potential, something that must be changed, say the researchers. Non-equity funding, they add, needs to be easily accessible for

Mark Smith co-founded fast-growth SME Quercus, which saw success thanks to Stieg Larsson’s Millennium trilogy, but sold this year to Hodder and Stoughton

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SMEs with growth potential, as it allows expansion and exposure to resources, such as people, ideas and new markets. “The ability to juggle and manage these ﬁnancial affairs seems to be a central element determining the success of rapidly growing SMEs,” state Brown and Lee, whose report was funded by the Institute of Chartered Accountants Scotland. “As one of the case study ﬁrms commented: ‘Managing cash is the hardest thing in any business.’” bit.ly/SMEfunding

EMPLOYEE ENGAGEMENT

Going social in the workplace Investigating the business value of enterprise social networks

hile only a quarter of employees use social media at work, almost half (42 per cent) do so in their free time, according to a 2013 CIPD survey. So could official in-house social networks boost business performance by enhancing the way staff engage at work? This was the question posed by a new CIPD report Putting Social Media to Work – Lessons From Employers. It explores how social networks can be used effectively in a business context to help organisations run more efficiently, while encouraging valuable discourse. Seven organisations took part, including Marks & Spencer, Devon and Cornwall Police and the train company Southeastern. The study focused on enterprise social networks – Facebook-like platforms that operate within organisations, which are easy to use and don’t require special equipment or knowledge. They draw in

employees “who want to connect, share and discuss with colleagues or even just ‘lurk’ and see what others are discussing”. “Most employees, especially the younger ‘digital native’ generations, will soon expect to be able to communicate in this way,” states the CIPD. “Being up to speed with social media may strengthen the employer brand and be an important attribute that helps attract and retain employees.” The size of the organisations was found to be a key factor. “Large companies discovered enterprise social networks allowed colleagues to connect who would otherwise not come into contact,” the report states. “With the rise of ﬂexible working and teleworking, this is likely to grow in importance.” To help companies run smoothly and for the enterprise social network to be embedded in corporate culture, the study found that the platform needed to be used daily. Consequently, it recommends employees are given guidance in how to use the network until a certain level of uptake is reached. Enterprise social networks were revealed to be an “excellent and very time-efficient tool for senior leaders to help them engage with a wide range of employees and be more visible across the organisation”. However, the study reports that senior executives’ most useful role on enterprise social networks is often one of encouragement, as too much involvement in discussions can put off more junior employees from contributing. “Certainly it would have a negative impact if senior managers were seen to be clamping down on employees with whom they disagreed,” says the CIPD. The report concludes that an enterprise social network will reﬂect the culture, tone and morale of the organisation in which it exists – and, while it can be a

The impact of introducing an enterprise social network at Southeastern was “phenomenal”

signiﬁcant initiative in its own right, “it is above all a tool or platform for change, to be used towards a purpose”. Recommendations for enterprise social networks: • They should be self-managed and uncensored. • Negative criticism should be engaged with frankly and openly. • Those who post material that offends should be informed. • Posts must be named, and not anonymous. • There must be an expectation of respectfulness. • Managers need to loosen their grip so they support rather than control. • They need to be aligned with forums, workshops and Q&A sessions. Connecting a train company Southeastern, which employs 3,800 people, runs trains in London, Kent and East Sussex. The company had routinely used a static intranet, which offered no interactivity, for its company news, policies and safety plans, but found usage was low. It introduced the enterprise social network WorkMate, which, during its pilot, received nearly 100 times the 540 visits that the intranet had E 71

attracted. The main objective was to create a single website for employees to visit to converse, ask questions, ﬁnd resources, obtain live train service updates, and digest corporate messages. Around half the workforce log on to WorkMate in a given month and “about 60 questions and several hundred comments are posted each week”. It has become a discussion forum, where people can post micro blogs of up to 400 characters plus attachments. It has now been put in the cloud, so employees can gain access from anywhere, not only from Southeastern devices. The company’s HR director, Andy Bindon, describes WorkMate’s impact as “phenomenal”. Business beneﬁts of social enterprise networks: • Employees naturally want to discuss their workplaces, so having a voice that lets them contribute to the quality of their working life brings satisfaction. • These networks take the concept of a suggestion box to a new level – they can be used to gain feedback and ideas, and allow management to let those with the relevant knowledge test them out. • They provide a safe place for open discussions between named colleagues. This ‘gated’ place gives a platform for sensitive discussions, where reputation and security can be managed. • People across an organisation can lead others in areas where they have valued expertise. Employees can contribute to discussions based on their insight, instead of their position within a hierarchy. • Employees are enabled to self-organise in a way that’s appropriate for their work, driving bottom-up change. • Immediate updates from the frontline and between colleagues mean service delivery can be improved in real time. 72

• Social media supports democratic and new discussion, and will most likely develop organically, as employees ﬁnd the uses that best suit their roles. bit.ly/CIPDSocialMedia

DECISION-MAKING

The secret to making better decisions The business tool that’s all in the mind and growing in popularity

indfulness is increasingly viewed as a powerful business decision-making tool, so much so that it is being incorporated into negotiation training and leadership manuals. A new study entitled Improving Decision-Making Through Mindfulness, addresses how leaders can use this technique of stilling the mind to their best advantage. Authors Natalia Karelaia, INSEAD assistant professor of decision sciences, and Jochen Reb, associate professor of organisational behaviour and human resources at Singapore Management University, deﬁne mindfulness as “the state of being openly attentive to and aware of what is taking place in the present, both internally and externally”. They admit that paradoxically, mindfulness is “conceived as encompassing an attitude of non-judgement”, but argue that it leads to better judgement – “precisely by helping us to be less judgemental”. The report explores the possibility that, by reducing habitual and reactive behaviour, mindfulness may increase self-determination and, therefore, encourage people to

make decisions, and do so in a more balanced way. Karelaia and Reb’s research leads them to conclude that mindfulness can help at each stage of the decision-making process, from framing a decision and gathering and processing information, to drawing a conclusion and learning from feedback. They also belive it can be used to avoid the time wasted by making a decision when it’s not really necessary to do so. The researchers cite an example of a new manager being expected to make changes on starting their job. Mindful decision-makers, they say, will notice the social pressures on them to make a decision, but won’t act on them. “As a consequence, more time will be dedicated to assessing the issues that do require action to ensure achievement of organisational objectives,” states the report. “Similarly, mindfulness may help individuals realise when they spend too much time on ‘micro-decisions’ that are likely to have little or no impact on their fundamental objectives and wellbeing in general. Such understanding will, in turn, free up resources for more important, consequential decisions, as well as reduce the anxiety associated with a sense of being overwhelmed by decisions that need to be made.” Karelaia warns, however, that while mindfulness can help with decision-making, leaders need to be aware of the dangers of not screening information widely enough, which could lead to certain factors being overlooked. Also, focusing on the present may mean that not enough weight is placed on the future or past. On balance, though, the authors conclude that mindfulness leads to better decisions being made over time. bit.ly/MindfulDecisionMaking

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Learning to ﬂy: Many of the world’s great successes were built on past failures LEARNING FROM FAILURE

Gaining from mistakes Clearer job descriptions may help people learn from their errors

ailure is often cited as an opportunity for learning, but in some cases, no lessons are learned. So under what conditions are staff most likely to acknowledge an error, and use the experience to improve future performance? The reasons behind whether organisations learn from mistakes or not was investigated by Francesca Gino, Harvard University, Christopher Myers, University of Michigan, and Bradley Staats, University of North Carolina. In their working paper, ‘My Bad!’ How Internal Attribution and Ambiguity of Responsibility Affect Learning From Failure, they looked into whether individuals put the cause of the failure down to themselves, or to external factors, to see if this affected learning. They found that when employees were conﬁdent about their

responsibilities, they were more likely to link failure to themselves and put more effort into learning and improvement. The key factor was deemed to be recognition of responsibility for a task, and therefore the subsequent failure. Where responsibility was unclear or it was suggested that another factor might have caused failure, the same efforts were not made. This could lead managers to tighten up job descriptions to avoid ambiguities, so that those who do fail are more likely to gain from the experience through learning, instead of opportunities being lost. bit.ly/learningfromfailure

CUSTOMER COMMUNICATIONS

Making an impact online Which social media messages work best for businesses?

onsumers are bombarded with online content, particularly on social media, so what can businesses do to ensure they don’t

simply disappear into the mass of information available? In their working paper, The Effect of Social Media Marketing Content on Consumer Engagement: Evidence from Facebook, Harikesh Nair, associate professor of marketing at Stanford Graduate School of Business, and doctoral student Dokyun Lee and associate professor of internet commerce Kartik Hosanagar, both of The Wharton School, the University of Pennsylvania, investigate the link between social media content and consumer engagement. They explain that engineering content so that it “better engages targeted users and drives the desired goals of the marketer from the campaigns they implement” is becoming increasingly important as businesses grow their social media activity. In fact, expected spending on social media marketing will grow from 8.4 per cent of firms’ total marketing budgets in 2013 to 22 per cent in the next five years in the US, according to the 2013 Chief Marketing Officer Survey. To find out what type of material works best, the researchers used algorithms to tag the content of more than 100,000 messages from 800 companies that target Facebook users, over an 11-month period. The content was either persuasive, using emotional or philanthropic wording, or informative, including product details, price and availability. User engagement was defined by ‘likes’ and comments on the messages. “Our main finding is that persuasive content drives social media engagement significantly,” say the researchers, “while informative content tends to affect engagement positively only when combined with persuasive content. This is important as most firms post messages with one content type or other, rather than in combination. Our results suggest E 73

there may be substantial gains to content engineering by combining characteristics.” The study does not address how engagement affects product demand or revenues. However, it cites other studies on a smaller scale that show increased sales as a result of Facebook advertising or setting up company pages on the social network. Additionally, the report stresses that businesses value consumer engagement for its own merits. “This is consistent with our view that a dominant role of advertising is to build long-term brand capital,” say the researchers. They point out that even though advertising may only have a small effect on demand in the short-term, intermediary activities, such as increased consumer engagement and awareness resulting from social media content, could signiﬁcantly increase its impact in the long term. “Therefore, studying the formation and evolution of these intermediary activities − like engagement − is worthwhile in order to better understand the true mechanisms by which advertising affects outcomes in market settings,” the researchers conclude. bit.ly/socialmessaging

EMPLOYEE VALUE

Measuring human capital Deﬁning the strategic value of your talent base

nderstanding how valuable talent is to an organisation is critical in the current business landscape of transparency and reporting. The study Managing The Value of Your Talent, from the CIPD in partnership with UKCES, Investors in People, CMI, CIMA 74

training costs (“activities that convert the human capital input level into higher level outputs”) and staff compensation and beneﬁts (“an input that is a basic component of human capital resources and provides fundamental data about the workforce”). The CIPD states: “We believe that organisations should begin by voluntarily reporting on these four indicators on an annual basis to enhance transparency and also demonstrate the sustainability of the near, medium and long term.” bit.ly/talentvalue

Kartik Hosanagar, the Wharton School, the University of Pennsylvania

and the RSA, recognises that there is a lack of consistency in the way data about human capital is collected, analysed and reported. Beyond quantitative metrics, which the CIPD says are not consistently defined, the majority of the information on human capital tends to be subjective and qualitative. It is the combination of these different types of data, according to the report, that together provide insights into what drives value, organisational culture and people risk. On the basis of its research, the CIPD’s objective is to promote further discussion on what might be the ‘critical common metrics’ for more consistent external reporting. From its wide-ranging study, it identifies measures that organisations should strive to obtain. These, the CIPD hopes, will provide a basis upon which to analyse the level of investment made by organisations in their people – and how much return they get back. In the report, the measures are defined as: employee engagement survey score (“an output that adds measurable value to an organisation”), recruitment and

NEGOTIATION SKILLS

The power of the handshake When does a greeting become more than just a greeting?

haking hands is one of the universal ways we greet each other. But a new study suggests this common action is more than a mere greeting and can actually have a positive effect on negotiations, even where there is conﬂict between the parties involved. Juliana Schroeder and Jane Risen, University of Chicago, and Francesca Gino and Michael I Norton, Harvard University, have written a working paper, Handshaking Promotes Cooperative Dealmaking, in which they studied pairs of individuals in various types of negotiations. They observed integrative negotiations, where neither person’s interests are completely opposed or completely compatible, which allows both to beneﬁt through trading. They also looked at distributive negotiations, where the participants’ interests were totally opposed and “are

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characterised by a different set of strategies, such as appearing ﬁrm and even lying about one’s interests”. They also put people with differing interests together randomly to see what effect this would have. The team found that even where the situation is one of conﬂict, shaking hands prior to negotiating had a positive effect and boosted cooperation between the people involved. They conclude that this form of non-verbal communication, which is cognitive and emotional, signals cooperation and can dilute what might otherwise be a hostile beginning to negotiations, as the parties involved show a willingness to work together. bit.ly/morethanagreeting

MARKETING STRATEGIES

Keeping luxury brands exclusive Going mainstream can damage a company’s upmarket image

xpanding their customer base without sullying their cachet through downmarket associations is a conundrum facing upmarket brands. After splashing its famous checked motif around liberally, on items such as dog leads, Burberry reconsidered its strategy when it became commonplace and, while sales increased (along with fakes), the brand’s exclusivity was tarnished. The company now reserves its hallmark checks for more discreet places on products and garments, such as linings. Tiffany and Gucci experienced similar scenarios, but Silvia Bellezza, doctoral candidate, and Anat Keinan, associate professor of

Fashion victims: Growing clothing brands struggle to maintain their upmarket image

marketing at Harvard Business School, have found it doesn’t have to be this way. Their paper, Brand tourists: How Non-Core Users Enhance the Brand by Eliciting Pride, reveals that expanding sales can actually help upmarket brands in certain conditions. Their study looked at six luxury brands, including Prada. They made the distinction between core consumers, who own a Prada handbag, and non-core consumers, who have bought a Prada key ring, for example. They found that the problem lies in core customers’ perception of the level of ownership bestowed on their non-core counterparts. In one of the studies, owners of Prada purses were told that anyone who visited a boutique would be given a high-quality paper shopping bag bearing the store’s logo (whether or not they bought anything). “We told one group of owners that bag recipients saw themselves as part of the Prada community, and told a second group that the recipients carried the bags to show their admiration for the brand, making them brand tourists,” explain Bellezza and Keinan. “The ﬁ rst group felt that the free bags

diminished the brand, while the second reported feelings of greater pride in being a Prada owner. For each brand we studied, positioning non-core customers as brand tourists created positive feelings among core customers. Similarly, we found that advertising non-core products as a sample of, rather than a substitute for, the core offering generated the brand tourism effect.” So, how can businesses ensure they don’t alienate their core buyers when they aim for the wider market? One way, suggest the researchers, is to use different packaging for different lines, or separate distribution channels. For example, Bulgari donated income from a less pricey jewellery collection to a charity, which gave new buyers a positive association. Using Harvard as an example, Bellezza and Keinan suggest restricting the use of its logo to those students who attend the university full time. With careful planning, therefore, expanding a target demographic can lead to greater sales – and keep those crucial high-spending core buyers happy, too. bit.ly/HBSBrandTourists