When efficiency isn’t efficient

I’m always surprised when a healthy business announces mass redundancies.

According to my friends in banking, this is because I’m naïve.

‘The best time to make cuts is when you’re doing well’, they say. ‘It reassures the city that your growth will be sustained, because you’re operating efficiently.’

And, if you judge a business purely in spreadsheet terms, I can see why this would make sense.

The problem is that it doesn’t work like this in real life.

On a spreadsheet, taking 10,000 salaries out of your business is efficient, because it reduces your cost base without reducing your revenue.

Whereas, in real life, taking 10,000 people out of your business means the people who are left feel demotivated, because they know they’re going to have to do more work.

It means all the effort you put into building your ‘employer brand’ will be undermined, because the people who work for you no longer trust you.

And it means the experience your customers have is likely to feel less good, which means they’re less likely to come back, which means your revenue will go down.

In 2008, American academics Charlie Trevor and Anthony Nyberg carried out a massive global study into the effects of downsizing. They found that, on average, a 1% reduction in workforce had the following effects on the employees left behind:

  • 31% increase in people choosing to leave
  • 41% reduction in job satisfaction
  • 36% reduction in commitment

In other words, any cost saving from the downsizing is massively outweighed by the loss of skills, goodwill and productivity that result from it.

The only businesses where it worked were the ones that managed the downsizing in a way that preserved the trust of their employees. By acting fairly, by communicating openly, and by showing them why it was the right thing to do.

In other words, by behaving like human beings.

There’s no function for this on a spreadsheet. But it’s the only way you’ll grow your business sustainably in the long term.

This blog has been adapted from a chapter in Matt’s new book; tribe: 66 ideas for building a winning culture. The book explores the characteristics that contribute to a winning workplace culture. If you fancy some bedtime reading, you can buy a copy here. Or pop into The Forge and pick one up for free (we might even make you a coffee…)

 

Make the numbers make sense

Long before Dick Cheney became famous as the hawkish architect of the Iraq War, he first rose to prominence by putting free market thinking at the heart of the Reagan administration’s economic policy.

It began one day when he was having lunch with an economist named Arthur Laffer, who had an idea about tax that he was keen to promote.

Laffer’s idea was that, beyond a certain point, hiking tax levels is counter-productive, because it prompts people to work less hard and look for ways to avoid paying tax. Whereas lowering taxes encourages people to be more productive and compliant, which means you raise more tax revenue in the long term.

This was not a new idea (Laffer borrowed it from a 14th century Islamic scholar, Ibn Khaldun), but it was very much contrary to the prevailing thinking at the time and he wasn’t having much luck getting his point across.

Cheney shrugged his shoulders and said ‘I don’t get it. How can you get more money if you charge people less tax?’

Frustrated, Laffer grabbed a napkin and scribbled this sketch on it.

make the numbers make sense

All at once, the penny dropped. Cheney picked up the sketch and used it to reformulate the Republicans’ economic strategy for the next election (which they won by a landslide).

That was the moment when Reaganomics was born, along with all the dreadful yuppy nonsense that went with it.

But let’s ignore the junk bonds, shoulder pads and big hair.

The point is that, if you want people to engage with data, you have to bring it to life – and the best way to do that is with a picture. Which is why infographics have become so popular in recent years.

Apart from anything else, the process of turning complex numerical data into a single image forces you to be simple. It makes you think about the information in the way your audience might think about it. It forces you to delve into the mountain of data and pull out the one key point or pattern that explains exactly why it matters. And it allows you to express it in a way that your audience is likely to grasp.

Because the really important thing to remember about numbers is that they don’t matter. What matters is what the numbers mean.

 

Start with your employees and the rest will follow

Herb Kelleher, who died this month, is widely regarded as one of the greatest CEOs America has ever seen.

Which is odd, because he never set out to run a business at all. He started his working life as a lawyer in New Jersey, before moving to Texas. It was while having dinner one night with a client in San Antonio that the two began discussing an idea for an airline that would help people travel more easily around the vast State.

The business that grew out of this conversation, Southwest Airlines, became the template for every budget airline that followed – as well as a shining example of what you can achieve with a business if you start by thinking about the people who work in it.

Kelleher’s genius was for making things simple and creating a culture where people took themselves lightly, but their jobs seriously.

When recruiting new pilots, he once brought all the prospective candidates together in a hangar on a warm day – and then turned the air conditioning off. An employee came out, apologised for the heat and offered shorts to anyone who wanted them. Some accepted but most, worried about not looking business-like enough, stayed in their shirts, ties and long trousers.

Only the candidates who took the shorts were offered a job. Kelleher wanted people who would be driven by common sense, not protocol – and flexible enough to adapt to unexpected conditions.

Naturally gregarious and charismatic, he once publicly arm-wrestled a rival for the right to use a disputed slogan (he lost, but with such good grace that he was still allowed to use it).

Above all, Kelleher had a gift for inspiring loyalty and dedication from his employees, because they knew with absolute certainty that they were his first priority.

As he once put it:

‘If you treat your employees right, guess what? Your customers come back – and that makes your shareholders happy. Start with your employees and everything else follows from that.’

The gunpowder test

Sailors in Nelson’s navy were entitled to a daily rum ration as part of their pay.

To make sure the rum hadn’t been watered down too much, the crew would test a sample from the barrel by pouring it over gunpowder. This process was called ‘proving’. If the gunpowder failed to ignite, it meant the rum contained too much water.

So the navy carried out experiments to determine the lowest concentration of alcohol at which the gunpowder would still ignite. They calculated it at four parts alcohol to three parts water (57.15% Alcohol by Volume in today’s language).

From then on, rum containing that percentage of alcohol was deemed to be ‘100 proof’, a measure which became the standard benchmark for alcoholic strength in the UK until 1980.

It’s a handy pub quiz fact. It’s also a fascinating example of the value of trust in employee relations.

Because the officers on board knew they could be confident the rum would ignite, they embraced the idea of the proof test and turned it into a public display. Which meant it stopped being a point of contention and mistrust for the crew – and, instead, became a repeated celebration of their employers’ integrity.

The Royal Navy became known for the morale and discipline of its crews and, as a result, their superior skills in seamanship and gunnery. Which allowed the British to defeat even their more powerful enemies, dominate the world’s oceans and establish the largest empire ever seen. All without spending a single penny more than they were contractually obliged to (because their rum rations were as efficient as they could possibly be).

Next time your finance director asks you why it’s worth investing in engagement, you might want to tell them this story.

Why not?

If you were born after 1980, when you hear the name ‘Buzzcocks’, you probably think of a slightly arch musical quiz show on BBC2. (If you were born after 2000, BBC2 was a channel on a thing called television. Google it).

If you grew up in 1970s Britain, on the other hand, there’s a good chance the name will fill you with a warm glow of nostalgia.

Even if you didn’t really like punk, it would have been hard not to be drawn to the infectious energy of the Buzzcocks’ output. Songs like ‘What do I get?’, ‘Orgasm addict’ and ‘Whatever happened to…?’. Ear-worming riffs. Whip-sharp, slightly edgy lyrics. Cocky, confident posturing. All wrapped up with a knowing grin and a three-minute play-length. It was about as close as you get to perfect teenage music.

So today feels like a pretty sad day to me.

Pete Shelley, who died yesterday, was the man who formed and led the Buzzcocks and wrote all their best songs.

He was also a natural entrepreneur, who basically invented the idea of independent record labels.

When the Buzzcocks couldn’t get a deal with one of the big record companies who dominated the industry at the time, Pete talked family and friends into lending the band enough money to start pressing their own vinyl EPs, which they sold in the Virgin record store in Manchester.

20 years before the internet was invented, the Buzzcocks went viral through sheer energy and bloody-minded determination: playing gigs, building an audience, hustling record stores and, eventually, elbowing their way into the mainstream.

Their best-known number – ‘Ever fallen in love (with someone you shouldn’t have)?’ – was a brilliant reinvention of that old pop cliché, the love song.

It was also unusual, at that time, in being written as a love song to another man. While Elton John was coyly getting married to a woman, Pete was quite comfortable talking openly about his bisexuality.

Pete Shelley broke the mould. He made his band successful without any help from the music industry behemoths.

Along the way, he helped to democratise popular music – and pave the way for a much more eclectic and authentic soundtrack to my (and many other peoples’) youths than those behemoths would ever have allowed.

And he did it all with a smile on his face.

So, if you want a template for authenticity, creativity and sheer can-do determination, my advice is to google ‘Buzzcocks’ and keep scrolling down until you get to the band.

Let the giraffes out

A few years ago, a little girl named Lily Robinson wrote to Sainsbury’s about their bread. This is what her letter said:

Dear Sainssssssssssssbbbbbbbbbbbbbburyyyys,

Why is tiger bread called tiger bread?

It should be called giraffe bread.

Love from Lily Robinson (age 3 ½)

When you look at the product, you can see that she’s got a point. Lots of spots, no stripes: definitely much more like a giraffe than a tiger.

Lily’s letter ended up in the in-tray of a man named Chris King, a manager in Sainsbury’s customer service team. He liked the letter and he wrote one back in a similar style:

Dear Lily

Thanks so much for your letter. I think renaming tiger bread giraffe bread is a brilliant idea – it looks much more like the blotches on a giraffe than the stripes on a tiger, doesn’t it?

It is called tiger bread because the first baker who made it a loooong time ago thought it looked stripey like a tiger. Maybe they were a bit silly.

I really liked reading your letter so I thought I would send you a little present. I’ve put a £3 gift card in with this letter. If you ask your mum or dad to take you to Sainsbury’s, you could use it to buy some of your own tiger bread (and maybe if mum and dad say it’s OK, you can get some sweeties too!) Please tell an adult to wait 48 hours before using this card.

I’m glad you wrote to us and hope you like spending your gift card. See you in store soon.

Yours sincerely, Chris King (age 27 ½)

Customer Manager

Lily’s mother was so delighted with this charming reply that she posted it on her blog. It quickly went viral, was picked up by the media and earned Sainsbury’s a lot of very positive publicity.

What’s interesting about this story is that Chris King was not acting in line with what was expected of him as a Sainsbury’s customer service manager when he wrote that letter. Quite the opposite.

The customer service team is there to deal with customer concerns and protect Sainsbury’s reputation as efficiently and effectively as possible. Being brutal, it’s about keeping the noise down.

Lily’s letter wasn’t noise: it wasn’t a business risk and it didn’t really require much attention. He could have just written a standard reply along the lines of ‘thank you for your interest in Sainsbury’s – please find enclosed a gift token.’ That would have been the correct thing to do; the efficient, standard, procedurally-compliant thing to do.

But Chris King didn’t do that. He wanted to be more than just efficient and professional. He wanted to respond like a human being. And, by doing that, he made Sainsbury’s seem human and likeable, too.

Not because of their procedures but in spite of them.

Sometimes, you just have to let go

Wikipedia was set up 17 years ago as an experiment in collaborative knowledge-building. It’s now the world’s fifth most visited website – and the first place most people turn for information about anything.

What’s interesting about Wikipedia is that it subverts the previous norm. Instead of being curated by experts, it depends entirely on volunteers to submit and update its content.

Detractors have claimed that this makes Wikipedia unreliable. How can you trust the accuracy of information, they argue, if you don’t know the authority of the source?

They’ve got a point: there have been well-documented examples of howling errors, as well as allegations of entries being manipulated by interested parties (including the CIA and political lobbyists).

On the other hand, Wikipedia includes over 48 million separate detailed entries, written in 293 languages. In almost every case, those entries were written – and moderated – by people with a far greater knowledge of their subject than could ever be possible with traditional reference sources, such as Encyclopedia Britannica or Larousse.

No matter how good your paid researchers might be, it’s simply not economically viable to have enough of them, with diverse enough backgrounds, to be able to know that much about that much.

Wikipedia is a trade-off: you lose a bit of certainty, but you gain a massive increase in depth, variety and richness of content.

It’s the same trade-off most big businesses struggle with every day.

On the one hand, they want to ‘empower’ their employees. They know that, in many cases, those employees have a much more direct connection with customers than the people at the top of the business. They want them to use their initiative to be more agile – and their personality to inject warmth and humanity into their daily work.

They know that, if they can do that, their customers will have a much better experience and their business will be more successful.

But, on the other hand, most businesses are terrified of giving up control. They’re scared that, given too much real autonomy, their employees will make bad decisions that damage their reputation or lose them money.

And they’re right. If you give your employees a genuinely free hand, in some cases they will make bad decisions.

But, if you don’t open yourself up to that possibility, you’ll never be able to harness the incredible creative and human benefits that real empowerment can bring to your business.

Your call.

 

Why we should all be feminists

It’s official.

Men are, on average, more systems-oriented than women.

Women, on average, have higher empathy levels than men.

These were the not-very-startling conclusions to emerge, last week, from a Cambridge University report into gender differences, based on a study of over 700,000 people.

The report’s author, Simon Baron-Cohen, is a professor of developmental psychopathology and fellow of Trinity College, Cambridge.

He is also, more intriguingly, the cousin of comedian Sacha Baron Cohen, whose best-known creation, Borat, was funny because of his unreconstructed attitudes to gender, race and sexual orientation.

In Borat’s world view, a woman was for cooking and children and ‘sexy time’ –  and quite specifically not for any position of responsibility, such as presenting a television programme or running a corporation.

The odd thing is that, if you peek inside the boardroom of almost any FTSE 100 business today, you might be forgiven for thinking Borat’s world view isn’t quite so comical after all.

Of the hundred Chief Executives in those companies, only six are women.

Yet, when you look at the trajectory of the businesses, most of them are having to adapt their model rapidly, to survive in a world where customer experience and reputation are becoming the only measures that count.

It’s a world where empathy is an increasingly important skill. Where humanity trumps efficiency. And where agility trumps process.

And yet it’s also a world where the people setting the cultural agenda are men.

Now, I’m not naïve enough to suggest the only way to make a process-driven business more human is to hire a female chief executive. It’s obviously not that binary. There are plenty of male executives whose empathy levels are well above average (and plenty of female executives who are more at home with a spreadsheet than a friendly chat).

I’m also aware that this may sound like virtue-signalling from a middle-aged white man.

So let me get to the point.

The pace of technological change is getting faster and faster. The life-span of businesses is getting shorter and shorter. Customer relationships are getting more and more important. The only way to succeed in the long-term is to have a business that connects with people in a meaningful way. The only way to do that is by building a culture based on empathy. And women are, on average, more empathetic than men.

So you don’t need to be a feminist to think there should be more women setting the agenda at our biggest companies.

You just need to do the maths.

 

If it ain’t broke…

Douglas Haig was the Commander of the British troops on the Western Front between 1915 and 1918.

He was also a cavalry officer. So he knew the quickest way to win a battle was with a decisive thrust by mounted troops, who could move fast, get in behind the enemy and capture ground quickly for the infantry to consolidate.

That was the prevailing military orthodoxy. That’s what he’d been taught at Sandhurst. That was the way battles had been fought and won for the last 300 years.

So, when military designers approached him in 1915 with a prototype for a ‘land ship’ – an armoured vehicle with caterpillar tracks and guns – he couldn’t see the point. The new weapon was mechanically unreliable, difficult to manoeuvre and nowhere near as fast as a galloping horse.

But, as the war on the Western front continued to be a bloody stalemate, Haig was frustrated. He needed to find a way of breaking through the well-entrenched German lines, so he could deploy his cavalry and win the battle.

So he contacted the designers and told them to send everything they had – at the time, around 50 vehicles (which, by now, were being referred to as ‘tanks’, in a bid to persuade enemy spies they were just for transporting water).

By the time they got to the front, only 32 of the 50 tanks were still working, but Haig threw them straight into battle. It was a qualified success – only nine made it as far as the German trenches. But they did some damage, so he persevered.

Over the next two years, the technology improved. The tanks got quicker and more manoeuvrable. By 1918, they were an established weapon: over 500 of them took part in the decisive battles of the hundred-day offensive that eventually broke the German lines and ended the war.

What’s interesting is the conclusion both sides drew about the tank as a weapon after the war ended.

The British still saw it as a tactical solution to a specific problem (breaking through a defensive line).

Whereas the Germans, having experienced tanks from the sharp end, realised they were a devastating new way of fighting wars – and re-designed their whole military strategy around them.

22 years later, their Panzers came back to Northern France and ran straight through the French and British armies, who didn’t know what hit them.

You see the same thing in business all the time.

Some companies embrace innovation as a way to completely transform the way they work and the experience they offer their customers.

And some see it as a way to keep doing the same things that worked last time, only a bit quicker and cheaper.

Like the British army in 1939, they’re still fighting the last war.

 

What’s that ticking noise…?

In 1958, the average lifespan of a business in the American S&P500 index was 61 years. Today, it’s 18 years. By 2028, it will be nearer 11.

In fact, according to a study by the Yale School of Management, it’s likely that around three-quarters of the companies in the S&P500 today will have disappeared from it altogether in ten years’ time.

No wonder CEOs are jumpy.

They know that, if they don’t keep reinventing their business, it won’t be one of the 25% that survives beyond the ten-year mark.

But they also know that, if they don’t hit their short-term targets, they probably won’t be around long enough to make the changes anyway.

With operating costs already cut to the bone, those targets are getting harder and harder to hit, which means there’s very little margin for error.

And that’s precisely where the problem comes.

When you’re looking for creative ways to reinvent your business, the surest path to failure is to play it safe. A little bit of incremental change here, an extra blade on your safety razor there. These are not the things that will save your business when a disruptive new competitor rips up the rule book and starts eating your lunch.

But, when your primary business focus is on delivering short-term results, you’re unlikely to have a culture where people embrace risk and failure.

It’s far more likely to be a culture where people stick rigidly to the processes and ideas that worked last time. A high-compliance culture, where contribution is measured only in numbers. And where nobody wants to admit that something hasn’t worked.

That’s not an environment where new ideas are likely to flourish. And, unless you can do something to change it, your business will inevitably suffocate and die – sooner rather than later, according to the Yale study.

So, what can you do? How do you take a workforce of people conditioned to be compliant process-followers and turn them into agile entrepreneurs?

Well, the bad news is that there’s no process for it. There’s no template to follow. No lever to pull.

The only way to do it is by changing the culture of your business. And the only way to do that is if you – and every other leader in the business – really wants to.

Everything else – launching a new purpose and values, polishing your employee value proposition, setting up a ‘creativity lab’ – is just a more or less interesting way of avoiding the issue.

You hear that ticking noise?

That’s time running out.