As industries become more competitive and future outlook more uncertain, we think it is crucial that organisations begin delegating responsibilities of key decision-making down into the line more proactively. Not only is the environment more demanding of businesses to make dynamic, agile and often uncomfortable decisions, but the average size of an operating unit is becoming smaller as technology allows automation, and contingent resourcing becomes the norm due to outsourcing trends. But in empowering the lower levels, how do organisations build a consistent philosophy from the very top, down to the line, and still maintain robust governance and adequate control? The answer we believe is in building a robust value-system and company culture (and certainly not more process!).
A new norm for firms of tomorrow
Today, the days where headquarters‘ solely defined strategies and resource plans, and pushed only sales and marketing activities to front line operating units, are fast diminishing. While once upon a time, top and middle managers would convene once a year in a strategic planning session, the new norm for progressive organisations is to entrust line and local region managers more and more to define things like go-to-market strategies, partnership strategies and propositions, micro-marketing activities, and even pricing and promotional constructs. This evolution has been slow and steady, but the shift distinct and inevitable, as unique market circumstances at the local level dictate business impact; and coincidingly, opportunities are becoming ever more marginal as more customer segments are tapped out.
However, we believe this new philosophy is at odds with the reality of many large incumbent businesses. Compliance and control, often perpetuated and institutionalised over decades of continued execution, generally rules the roost; inevitably resulting in less autonomy and empowerment given to the line. Time and again we have observed for example limits of authority defined in large organisations to favour higher management officers, with too little leeway afforded to lower level staff. The result is slow decision making, and worst still a working culture that crucially fails to instil strong ownership at all levels of the organisation.
Given the way some legacy businesses are run today, employees might as well be lemmings!
In our previous jobs, some of us at Agility had the opportunity to build new teams and organisations practically from scratch. Starting with a totally fresh canvas allowed us an objective review of the incumbent organisational philosophies and processes as a whole, and contrast that with what we thought the organisation should adopt given the more challenging operating realities. Suffice to say we unearthed plenty of gaps. In brief generalised terms, some of the challenges we found were to do with:
(1) Processes and compliance. Far too often, processes such as hiring, or procurement of an external service are treated generally as mechanised compliance exercises, thus falling short of prioritising business objectives of expediency and rigour in decision making. Particular offending areas typically are in HR, procurement and finance approvals/capital allocation. Take for example the following; spending approvals in large corporate organisations is often a multi-stage process starting from proposal, to validation, to approval. Final approvals require concurrence from 3 or more senior leaders, and any one proposal has some 10 or more stakeholders involved. This tends to dilute accountability, and in reality only 1-2 people are actually fully engaged and actively contributing to the decision. Another example, is in HR; in typical large organisations headcount fill-rate can be middling at 50-70% by mid-year even for ’critical projects', due to slow hiring processes. We fail to see how in these two examples, that the process is putting the business first.
(2) Mindsets and behaviours. As compliance and control takes a centre stage in the agenda of the organisation, mid- and lower-level staff often inevitably lose crucial ownership of the challenges and problems that they are trying to solve for. They begin to view institutionalised processes as a safety net that effectively pushes the responsibility of asking tough questions up the chain of command. Rather than asking 'why not?' they soldier on through their quarters and blame things like compliance and interdependency on other teams as reasons for not delivering on business objectives and timelines.
(3) Autonomy and empowerment. As a corollary to (2), by asking fewer questions employees understand less about how they can translate the vision and aspiration of their team and business unit to the realities of their day to day work, thus creating disharmony in how that vision is jointly shared down the line. Once Finance and Procurement managers armed with their compliance checklists become ultimately the empowered decision makers, front line employees are inevitably less engaged with their responsibilities, due to loss of autonomy for decision making. As a result there is a tremendous loss as the organisation fails to cascade accountability down to front line employees, in addition to frustration for managers if/when their plans and efforts are denied.
(4) Risk aversion. Naturally the factors 1 through 3 often result in a timid workforce who feel uneasy about taking risks for fear of failure, or because they do not feel adequately accountable for what they are made responsible to pursue. This is a shame especially in today's market environment where there is so much uncertainty to contend with.
Trusting and empowering leaders to take failure head on, as a means of improving themselves, their teams and the resilience of the business
Facebook has an internal tagline ‘done is better than perfect’ - which is printed on a wall in the FB headquarters; Amazon has a values statement 'disagree, and commit'; while entrepreneur circles often live by the overused (and possibly abused) mantra, ‘fail fast, fail often’. Following these statement with careless abandon is probably recipe for disaster, however there is merit to consider for a moment their intended interpretations. Our interpretation is perhaps this: leaders and organisations need to accept that there is risk and uncertainty in everything, but they can't let that stand in way of progress and instead use those instances as opportunities to learn.
It is hard to describe precisely the rationale as to why all of a sudden businesses need to operate with a more risk loving attitude in this current time we are in. After all business and trade is centuries old, so there is perhaps expectation that by now we should already know everything there is to know. There is no simple answer, but given how fluid and dynamic the world is, predictable outcomes are definitely becoming rarer than hen‘s teeth. And with that, innovating through sheer brute force of many players vying to capture a finite opportunity are table stakes for any industry, and ultimately are what yield true breakthrough innovations that hit the mark to gain market traction. So trying and trying again is central to driving the business forward.
Consider the following anecdotes:
(1) Google had acquired Android, the mobile operating system, in 2005 for just $50Mn as one of its first forays into the mobile space. It had no way of telling at the time how it would be used as elaborately as it is today, i.e. as an underpinning eco-system for their own mobile internet services such as Gmail, YouTube, Drive, Hangouts etc. that so many of us use. Today Android occupies some 85% of the worlds phones and is a significant revenue generator for Google despite historically charging OEM brands nothing for use of the Operating System (OS). As far as experiments go, this was a fantastic ROI, Android is worth at least 1000 times its purchase price today.
(2) On the other hand, Google also acquired Motorola‘s mobile division in 2011 for $12.5Bn. After failing to drive any meaningful business opportunity from the ownership, Google sold it to Lenovo for $10Bn three years later. Today it focuses solely on working with OEM phone brands to push Android as the primary OS of choice instead of playing directly in the hardware space.
(3) Netflix recorded a negative free cash of $2Bn in 2017 on the back of revenues of $11.6Bn, having spent some $6.3Bn on content production and licensing. 2018 projections stand at $3-4Bn (negative free cash), $15-16Bn (revenue) and a whopping $13-14Bn (content on cash basis) respectively. What this effectively means: Netflix has negative unit economics, i.e. it loses money the more customers it gains. And where does that money go? By and large, ’experimenting’ with original content production. In spite of this, its share price continues to soar given global subscriber growth to 117Mn global subscribers at end 2017. Netflix’s debt rating is 3 rungs into junk status but it still managed two debt rounds for a total of $3.9Bn in fresh raises in 2018. There are many paradoxes that Netflix embodies, yet its experimentation into an uncertain future seems well supported by investors & market, shareholders and customers.
(4) In January 2019, Netflix also launched a new engagement method for video when it released the next instalment of its original Black Mirror series (season movie title: Bandersnatch) globally to some 190 countries. For the first time ever, TV viewers were allowed to make on screen choices that then defined how the storyline panned out. This will either revolutionise TV and video viewing in the future, or be a total failure. Only time will tell. Netflix is also about to launch a 24-hour comedy satellite radio channel on SiriusXM (US and Canada based), putting their original programming into audio format. There is really no way to forecast the impact of these novel tactics, but its remarkable that Netflix is conducting these experiments at massive scale.
(5) While Facebook's high profile acquisitions such as Instagram and Whatsapp are well known, over the last 10 years the company has also acquired companies like Oculus, LiveRail, Atlas, Parse, Snaptu, Pebbles, Face(dot)com and many smaller companies. Time can only tell whether these investments pay off, but for now investors and shareholders have not factored them in much at all, as evidence by the volatility in share price given current operating realities. This has not stopped Zuck and the Facebook the leadership from pursuing multiple and sizeable investments that could have potential to make or break their future growth.
(6) Ride hailing service Grab recently raised additional money from investor Softbank to take their total series H funding in 2018 to $3Bn, valuing the company at $11Bn; a remarkable feat considering it launched in just 2012. Today, Grab is pushing diversification into consumer adjacencies such as mobile wallet, food delivery, games, video streaming, and many other areas. Is it certain each of these forays and ventures will pan out? Absolutely not, but given their cash warchest and pressure to improve the unit economics on their core ride hailing business, there is strong impetus to experiment and explore.
(7) Closer to home, regional telco Axiata had in the past made investments in some 32 businesses in the digital space, which include e-commerce players 11street and Elevenia, music streaming service Yonder, video streaming service Escape and US based MVNO FreedomPop. There is perhaps a reason why you may not have heard of any of these brands - none of them have been very successful in the region. For Axiata, these were part of a learning phase; the company has now moved to phase 2 where its primary focus is on revenue traction and profitability through businesses like Boost, ADA and Apigate.
In summary, there is experimentation happening everywhere; from how investors are placing 'bets' into new companies, how those companies are then taking diversified investments into acquisitions and minority stakes of other businesses, how each is driving internal innovation through moving into adjacent products and services, to how leaders and teams are being picked, organised and governed to adopt a more risk taking mindset. It seems that companies that are able to adapt to this new operating environment are the ones that may have the better starting point and resilience to grow to the next stage. Legacy businesses unwilling to evolve are already under threat.
Focusing on culture and values could be a robust approach to fostering the right employee behaviour
Management Consulting firms like McKinsey, BCG and Bain govern their employee behaviours and conduct not through SOPs, but almost entirely by their values framework. In fact SOPs are practically non existent in most consulting firms. The values are 'indoctrinated' to every new joiner via written material and training; McKinsey for example, spends one day across its global offices dedicated to "Values Day", where full-day discussions across all levels of staff take place around a range of related topics: (i) what the values statements mean to practical real life situation within teams and in interaction with clients, (ii) where values have been observed by staff to be affirmed or in tension, and (iii) planning what future actions are to be taken to avoid challenges in living their values. That being said, by and large McKinsey consultants use the values as a litmus tests to help them make judgements and trade-offs in their day to day work, rather than a religious creed to live by.
DeGarmo (HR consultant)
"Values provide a guiding architecture that drives performance and behaviour. Individuals and organisations (as a whole) have value systems that influence their attitudes, behaviours, and the ways in which they allocate resources. Values are the backbone or glue behind organisational culture."
Culture & values in digital companies: cases in point
A common feature of established digital-first companies like Amazon, Google, Facebook, Netflix and Zappos are that they are often vocal about their values, and take pride in how those values are unique to them. This is hardly surprising given each had started as small fledgling startups before they grew into the large organisation with tens of thousands of employees they have today. In their early days, while smaller, the values likely served as a means to differentiate themselves to prospective job-seekers, and there was a greater need to foster a positive work culture where feel-good values tend to work well. What is remarkable though is that in spite of having grown to their current size, each company still identifies well with their values, and there is a palpable sense of identity and responsibility with regards to upholding these values, and how they relate to their daily tasks and responsibilities.
A question incumbent legacy organisations should ask themselves is; 'If this is true about Amazon, with 570,000 employees, then why can't my organisation do a better job in establishing, upholding and living our values? What could my organisation be missing out on if our employees are detached from what our values describe?'.
Invent and Simplify
Are Right, A Lot
Hire and Develop the Best
Insist on the Highest Standards
Bias for Action
Vocally Self Critical
Earn Trust of Others
Have Backbone; Disagree and Commit
Deliver WOW Through Service
Embrace and Drive Change
Create Fun and A Little Weirdness
Be Adventurous, Creative, and Open-Minded
Pursue Growth and Learning
Build Open and Honest Relationships With Communication
Build a Positive Team and Family Spirit
Do More With Less
Be Passionate and Determined
Netflix values (descriptions as outlined in their culture document)
Judgment: You make strategic well-thought-out decisions using data and intuition.
Communication: You calmly listen to understand, speak and write with concise articulation, and adapt to ethnic diversity. Feedback to others is timely, candid, and constructive.
Curiosity: You seek global understanding and alternate perspectives, eagerly learning rapidly while making connections and contributing outside your specialty.
Courage: You search for truth, you question company inconsistencies with values, you don’t suffer from data paralysis, you speak your mind and take smart risks with a willingness to fail.
Passion: You inspire others with excellence, you care, and are humbly confident while being tenaciously optimistic.
Selflessness: You put the company first, seeking the best ideas while helping others and sharing openly.
Innovation: You thrive on change, challenge assumptions, create useful new ideas and solve hard problems by minimizing complexity.
Inclusion: You focus on talent and company values while collaborating with people of diverse cultures and backgrounds, embracing differing perspectives. You knowledgeable stand up for the marginalized.
Integrity: You admit mistakes, respect others, are authentic, transparent, and non-political. The only words you speak about co-workers are those you would say to their face.
Impact: Your coworkers rely on you and improve because of you. You focus on results over process and accomplish amazing amounts of important work.
"Culture, more than rule books, determines how an organisation behaves"
OKRs as a key tool to instil accountability
OKRs (Objectives, and Key Results) was a process and management framework developed in the 1970s by the then President of Intel, Andy Grove. In general it is similar to methods such as Plan-Do-Check-Action, or Set-Track-Reevaluate. Today, it is popularly used by managers for setting, communicating and monitoring periodic goals and results in organisations. The less obvious role of OKRs is effectively to connect company, team and personal objectives in a semi-hierarchical way towards delivering measurable results, while at the same time unifying all employees to work together in an aligned direction. Many tech companies live by the OKR method, especially Google, who thanks to John Doerr, an early Google investor and ex colleague of Andy Grove, had proposed the adoption of the method very early on at Google’s, whose teams still uses it extensively even today. Today thousands of teams and companies in the tech space such as LinkedIn, Intel, Zynga, Sears, Oracle and Twitter use OKRs. For additional background reading visit here.
Generally, the OKR framework attempts to answer two simple questions;
Where do I want to go? This answer provides the objective.
How will I pace myself to verify if I am getting/will get there? This answer provides the milestones, or key results.
OKRs are used at every level of the organisation and while initially designed for a quarterly business cadence, they have been known to be used at daily stand ups and weekly reviews. Perhaps it's easier to illustrate the merits of OKRs by way of examples. The following are Objectives (O) for specific functional teams, followed by Key Results (KRs) targeted;
Marketing: Simplify & clarify our product, messaging, presentation of things we do
25 on-site user-testing sessions to understand key product misunderstandings
10 tests of our recent infographics and slide decks for customer understanding
Get 1000 answers to an online user survey sent to all last quarter's signups
Conduct a team hackathon to create and publish full portfolio of product materials
Present an action plan for next quarter's messaging improvements
Sales: Increase the quality of our sales approach
Make sure at least 50% of signups % called back in first 24 hours
Have all salespeople listen in to at least 10 product demos of other team members
Create a best practices sales process document with minimum allowed service levels
Engineering: Improve our testing procedures
Implement test-driven development in 3 new development teams
Increase unit test coverage to 75% of code
Conduct a security assessment of our codebase using automated tools
Make sure satisfaction score of product management to testing team is at least 7.5
Discover at least 100 bugs and open issues in old code not reviewed in 6 months
Written in this manner, OKRs provide an alignment as to what needs to be achieved, and precise and measurable results to deliver against them. Other key features of the OKR method are;
Simple and agile. OKRs as you can probably tell are dummy proof! They require some debate to set, but can take mere hours or days instead of months. And they use shorter goal cycles, so teams can adapt fluidly and respond to change in real-time.
Transparent. OKRs are meant to be kept in a publicly viewable repository that can be accessed and viewed by all levels across all departments. Even the CEOs.
Efficient two-way goal setting. This is perhaps one of the crucial features of OKRs; they do not require cascading as they are set jointly between layers of the business and the dialogue simultaneously encapsulates top-down and bottom-up approaches.
Adaptable cadence. The OKR method can be adopted for use daily, weekly, monthly and quarterly, depending on the level it is used within the organisation. It also can be adapted to suit different timeframes of execution across functions, for example, a daily marketing activity will have a different cadence to bi-weekly software development sprints.
Ambitious targets and decoupling of rewards. This is another major rationale as to why companies like Google use OKRs. By definition Google's OKRs are defined so as to on average teams are meant to only achieve 60-70% of them. This embeds bold and ambitious goals into everything they pursue, i.e. goals that by definition they can't reach (yet). Doing this means that rewards and employee evaluation has to be decoupled from the OKRs, as individuals will not set ambitious goals if they knew their promotion and compensation were on the line.
Google Employee on OKR goal setting;
“Having goals improves performance. Spending hours cascading goals up and down the company, however, does not. It takes way too much time and it’s too hard to make sure all the goals line up. ”
An aggressive but fair and balanced up-or-out and retention policy
Netflix's HR/culture document is well known by now, available here for reading, and discussed in depth here (HBR) and here. Lauded as a seminal guide and thought piece for Silicon Valley companies by Facebook COO, Sheryl Sandberg, it describes the personnel philosophy and policies at Netflix that have been institutionalised over decades of the company's history, leading up to present day. At 128 pages long, the crux of it is a simple: to be a high performance company, Netflix needs to select and nurture excellent people, and these people must exhibit and uphold specific values deemed of importance to the Netflix's philosophy; if they fail to meet this bar they should be removed from the company.
Some observers have commented on how merciless and ruthless the document is in setting and describing the height of the bar for its employees. On balance, others say it is great that Netflix's CEO and CPO have the candour to put to writing what others may not have the guts to do, but know they need. We have covered Netflix's values in an earlier section in this article, but here's an excerpt that illustrates the intention of their culture document well; we suggest you read it yourself here if this piques your interest.
So, where to from here?
What can you do to build traction around improving culture, values and governance of people? This is a very broad question and naturally the answer depends on where your organisation is today along the path of 'enlightenment'. Perhaps as a starting point it is worth asking a number of question as a litmus test to see whether you are on the right track;
Do your employees complain about slow processes, in HR, procurement and finance approvals? Do you have an inkling of how much value is lost to this? Have you explored deeply whether the concerns are valid by speaking to key leaders in the organisation?
Do you have a clear set of values that mirror what your market realities suggest are necessary for your team to have? Do your employees internalise these values, e.g. are there programs across the organisation that helps provide clarity on what the values mean in day to day activities? Can at least 20% of your team recite the values if asked?
Is your performance management system robust enough (dynamic, simple, stretching) to meet the expectations of the market? Does your organisation, across all levels, practice the use of something like OKRs to ensure continued and rigorous alignment in key priorities, in addition to inculcating stretch aspirations?
Are you confident that your organisation is sufficiently rewarding your best performers, while at the same time taking aggressive measures to weed out low performers? Is your organisation making sure there is reskilling/upskilling of those whose skillsets are no longer relevant? Are you managing out those who are not committed to change?
Come talk to us
It is easy to understate and overlook the need to prioritise people issues when there is so much happening on the business end of things. In such environment, most leaders can only think of how to make everyone move faster to keep up with the pace. We have had first hand experience looking at this challenge, both from a large corporate's viewpoint and for dynamic, young startups, and can offer the following advice: focus equally, if not primarily, on your people agenda as a keystone enabler. Failing to do so risks not bringing the entire organisation with you on an aligned journey, so while things may go well for a short period of time, over the long run it will be a greater challenge maintaining a sustainable winning position.
Come talk to us to find out more about what you can do.