Innovation and the Importance of Failure Tolerance

Those of us who love working in tech companies know that culture and talent are the two most important ingredients for innovation. My favorite memories of both Netscape and EA are of engineers inventing things and the vibe that goes with nurturing curiosity and experimentation (engineers are also wicked pranksters but that's fodder for another post).

In both companies, trying new things was the reason you were there, so it was mostly hard to fail unless you simply used bad judgment and put your team or company at risk. In both companies the leaders knew that people had to tinker - it was in their blood - and in fact it was the only thing that kept the company in business. The art of leadership in a knowledge company is helping people with a structured, supportive approach to understanding customer needs and efficiently focusing their creative energy on those ideas which seem most likely to produce the most desired results for customers. If you've ever been on a team that actually labeled things as experiments you inherently understand the difference between experimentation and "failing" to achieve on your idea. The former is about collective learning and boundary pushing while the other assumes your value as a human being is tied up with whether a new idea ends up working out.

There is some new research out that attempts to quantify something I think many in the tech community would say is common sense, but it's still interesting to see the research. From MIT's Sloan Management Review:

"A new working paper tackles an interesting topic: the relationship between tolerance for failure and innovation. In particular, authors Xuan Tian and Tracy Y. Wang looked at venture capitalists’ tolerance for failure — and its effect on the innovativeness of the young companies they invested in.

One of Tian and Wang’s interesting findings: Venture-backed companies that eventually conducted IPOs (initial public offerings) and were backed by more failure-tolerant venture capitalists were significantly more innovative than other venture-backed IPO companies.

What’s more, the researchers’ analysis suggests that what particularly matters is investment at an early stage by a failure-tolerant investor. Venture capitalists, Tian and Wang conclude, appear to influence the culture of the early-stage start-ups they invest in — and failure-tolerant early investors result in IPO companies that are more innovative.

Tian and Wang measured VCs’ failure tolerance by looking at how long the VCs continued to invest in prior companies that they eventually wrote off. The authors’ measured innovativeness by looking at a company’s patents and the impact of those patents."

As someone committed to helping British Columbia's technology industry grow, it reminds me of the importance of helping entrepreneurs iterate on an idea until they've got a product that will take off. Given the abundance of finance, marketing, and organizational challenges this is no small order and I am excited by the work being done with BCTIA and other organizations dedicated to growing our tech sector.

Toyota's A3 Reports: Good Example of Systems Thinking

Ever been inside an organization when someone solves a problem in her area but creates a problem in yours? Systems thinking helps explain how things are connected inside an organization, like processes or the way people are working (or not working) together. Over time, these interactions add up and impact an organization's ability to execute.

Process re-engineering, six sigma, and associated management interventions all have a common goal: getting people to "look up and around" to really understand, at an organizational level, how their actions impact the entire process, product, service, or impact on the customer. If the organizational culture is not focused on systems-level improvements, trying to do this on your own can often overwhelm people so instead they tune their area, or perhaps collaborate with another area, but aren't prepared to deal comprehensively with the entire supply chain or processes. True cost or quality gains, however, happen because people are working together to constantly learn, share insights, and take action.

The key, of course, is that everyone shares a common understanding of how things work together, talk with each other to agree on whether something should change, implications for that change, and then agree upon a course of action. Learning how to do this as an organization takes time but there are many examples out there. Toyota is famous for their commitment to kaizen (the continuous improvement across all aspects of your life), and I thought I'd dedicate this blog posting to a tool used within Toyota to help make kaizen a reality.

MIT Sloan's Managment Review focused on the A3 report, named after the international paper size on which this two page tool is based, to illustrate how a tool can contribute to an entire organization turning into a team of continuous problem solvers. The core of the tool is about story telling to help synthesize lots of information into something easily understood by all. The process of collecting this information and documenting the connections and implications is the key piece to understanding how it impact the entire organization or system.

The A3 tool is just one element of a culture that makes continuous improvements possible. Leadership and technical training, rewards and recognition (promotions, celebrations, etc), and even the stories told to embody the desired behaviors (told by management and the employees) all contribute to a way of participating inside the Toyota organization. Judging by their rapid market share gains they are doing something very right and can be a source of inspiration for leaders in other organizations. Does your organization have a methodology around systems thinking? Is it necessary?

Peter Drucker's Wisdom: Five Key Questions

I wish I could have studied under or worked for Peter Drucker. He was one of the earliest management gurus and was a genius in his ability to take complex topics and make them easily understood.

I came across this quote from him that I think is particularly helpful in our economy:

"Planning is not an event. It is the continuous process of strengthening what works and abandoning what does not, of making risk-taking decisions with the greatest knowledge of their potential effect, of setting objectives, appraising performance and results through systematic feedback, and making ongoing adjustments as conditions change."

He asks five basic questions for leaders of any type of organization:

1. What is our mission?

2. Who is our customer?
- Who is our primary customer (ie, the people directly affected by our services / products)?
- Who are our supporting customers (the people impacted by changes to your customers)?
- How will our customers change?

3. What does the customer value?

4. What are our results?

5. What is our plan?

Start-ups constantly iterate on these questions as they refine their product or service into something marketable but usually it's a very organic, all-hands-on-deck kind of continuous conversation. After all, with five or twenty people on your team it's pretty easy for everyone to stay on the same page either because they're overhearing conversations, are all focused on the same product, or come from the same prior organizations and therefore share a common frame of reference or experience.

The organic nature of communication and discovery is quickly overwhelmed as more people join the team and suddenly people are (a) confused about purpose or (b) methods or (c) role clarity and accountability. The early team and leaders must find a scalable way to have common understanding of these questions and act in a way that produces the best results for the customer. This can be unnerving for leaders if they're trying to figure it out as they go. Aren't they supposed to be more senior and capable than the employees?

The beauty of leadership, of course, is that you never have to be the smartest one in the room . You do have to be really good at getting people to ask the right questions, sharing their insights, and working together to produce the highest value product or service sooner than your competitors. It's the difference between telling someone what to do versus learning as a team.

So take a page from Peter Drucker and answer the five questions for your organization. Compare what your colleagues say and consider how the differences in perspectives are reflected in the operations and results of your organization. Use those insights to help create a plan that incorporates your collective beliefs and goals, and then get working on the plan! Keep iterating on those five questions and your plan, tuning as you go.

Tips For Work Life Balance Programs

Brian Kropp from the Corporate Executive Board (CEB) recently published a study, detailed in Talent Management Magazine, showing that a growing number of employees are disengaged in the workplace as compared to a similar study from 2006. The opportunity to help employees reframe the work / life challenges with effective programs, however, seems to be lagging from what is truly needed. I thought this article had a good framework for identifying the elements of a work life proposition as well as good data on what seems to be the most important elements of an effective program.

From the article:

The uncertain economic environment has placed tremendous personal and workplace pressure on employees. Corporate Executive Board (CEB) analysis has shown a drastic decline in employee engagement since the start of the economic downturn, with the number of disengaged employees having risen dramatically from 1 in 10 in 2006 to 1 in 3 in the first quarter of 2009.

With financial instability fueling growing demands in many areas of employees' lives, it comes as no surprise that leveraging work-life balance practices provides employees with much needed flexibility and can greatly improve employee engagement overall. In this volatile economic climate, with downsizing and restructuring efforts having left employee morale low and workloads heavy, creating opportunities that can improve employee work-life balance can also have a tangible bottom-line impact for the business. Implementing effective work-life balance initiatives, however, can be challenging, and is directly linked to how well today's workforce development executives can identify and provide the right mix of benefits that are highly valued by the workforce.

The Business Case for Work-Life Balance

CEB research of more than 160,000 employees across industries and geographies has identified an interesting correlation between work-life balance and today's economic environment. While work-life balance has risen on employees' priority lists, their overall satisfaction with achieving it has fallen. CEB has been surveying employees throughout the downturn, and as of the second quarter of 2009, employees now rank work-life balance third only behind compensation and future career opportunities in terms of employer attributes that are of importance to them, compared to a ranking of sixth in 2006. Yet, today, the study shows that only 30 percent of employees are satisfied with their work-life balance, as compared to 53 percent prior to the downturn.

These trends directly affect companies' bottom lines in the form of decreased employee productivity. CEB's research also shows that more than 30 percent of employees miss time from work in order to meet their work-life needs. CEB's study has shown that effective work-life balance offerings can bolster lagging employee effort levels. Specifically, surveys show that employees who feel they have a better work-life balance work 21 percent harder than those who don't, which can dramatically improve the performance of organizations in the current economic environment. In addition, employees who are satisfied with their work-life balance are 33 percent less likely to leave their current organization than their peers who are not satisfied. While turnover might not be at the top of the agenda for most organizations right now, improving work-life balance can also result in better retention when the economy rebounds.

The Common Challenges for Organizations

While it is clear that improving employee work-life balance has real value to organizations, defining and improving the work-life balance of employees can be challenging. To better understand how organizations can most effectively deliver and maximize ROI in this area, CEB analyzed the most essential elements of employee work-life balance and determined the key lies in creating the right work-life proposition (WLP). The WLP is a set of work-life practices that employees perceive as the value they gain through employment in the organization. This includes six categories: work time, work location, family, development, services and health.

The challenge for employers, however, is that while an effective WLP demonstrates compelling benefits, most organizations struggle to successfully design and deliver a valuable one. The three most common root causes of why organizations fail are:

1. Few employees are aware of the work-life practices offered by their employer.
2. Most work-life practices are not targeted at the most important drivers of work-life balance.
3. Even fewer employees actually participate in the work-life practices offered by their employer.

While these challenges seem difficult to overcome, there is a series of cost-effective strategies that the most innovative organizations are using to effectively improve the work-life balance of their employees.

Solution 1: Give the Gift of Time

To better achieve a work-life balance for their employees, organizations have continuously modified the work-life practices they offer — yet few organizations have effectively prioritized the work-life practices that matter most to employees. According to CEB's 2008 report "Building and Managing a Global Work Life Balance," of the employees who are informed of their organization's work-life portfolio, less than 25 percent report that their organization offers the work-life practices that align with their preferences. Companies must ensure that their initiatives target the activities that most improve the work-life balance of their employees. After examining more than 32 different strategies, CEB found that work-life balance practices related to time management, including flexible work schedules, appropriate workloads and predictable working hours, are much more important to improving employees' work-life balance than providing services such as telecommuting, gyms or on-site medical facilities.

It's important to keep in mind as well that the similarities in terms of work-life balance preferences for various employee segments are much greater than the differences. While a great deal of speculation has been made concerning generational differences in the workplace, CEB research has found that there is surprisingly little difference in work-life balance preferences when looking at employees by function, age, industry, parental status or even gender. There is, however, one notable segment for which work-life preferences do vary: high-potential employees (HIPOs), or those who companies have designated for future leadership positions. HIPOs place dramatically more value on telecommuting technology to stay connected with the work they do and crave the always-on access that this connectivity allows. Interestingly, they are willing to give up predictability within their day and lower the barriers between their professional life and work-life balance to get this connectivity.

Solution 2: It's Not What They Use, It's What They Know About

Even when employers offer work-life practices to employees that align with their preferences, many organizations find it difficult to raise awareness about available programs and therefore fail to realize returns on their work-life investments.

According to CEB's aforementioned 2008 report, less than one-third of employees are actually aware of the work-life practices offered by their organizations. Therefore, another key mandate for employers is to focus on effectively communicating their work-life offerings to employees. In fact, awareness of work-life balance practices is more important than the actual consumption of the practices themselves for improving employee engagement. Increased employee awareness of the WLPs offered by a company increases employees' perceptions of whether or not they have a good work-life balance by 35 percent.

CEB tested a variety of strategies that organizations use to improve the awareness of the work-life balance practices they offer. Surprisingly, the most important factor is not the communication from human resources or senior leadership, but when employees actually see their peers take advantage of the work-life practices being offered by the organization. Organizations can therefore drive higher awareness of the WLP by simply ensuring that the information about work-life practices is accessible and frequently communicated and uses real examples of employees using the services offered.

Solution 3: Use Peers to Drive Program Participation

When employees participate in the work-life balance programs offered by their organization, their perception of whether or not they have a good work-life balance can increase by 29 percent. However, less than 50 percent of employees report ever having used any of the work-life practices offered by their organization. While building awareness of work-life balance practices is certainly critical, the lack of participation in programs creates a challenge for HR executives when CFOs start to question the logic of offering expensive perks and benefits to their employees. Much like building awareness, the most effective way to get employees participating in the work-life balance programs offered by their organization is for them to see their peers using the services.

While employers should certainly employ strategies to drive awareness and increase consumption in order to maximize returns on their work-life programs, they should know that efforts to drive awareness of practices also drive consumption. Although this will help organizations increase their overall effectiveness in delivering the WLP, executives should be aware that increased consumption will also raise the cost of work-life practices for the organization.

WLP: Not to Be Ignored

Most CFOs were quick to cut work-life balance programs at the start of the economic downturn because of a perceived lack of impact on the outcomes that inflect business performance. In reality, these programs can drive real business value when designed correctly. To effectively enhance employee work-life balance, the best organizations will build work-life practices around programs that create time flexibility for their employees, invest in building awareness of their programs and leverage their employee base to drive participation in programs, rather than trying to drive participation through HR.

Brian Kropp is practice manager for the Corporate Leadership Council at the Corporate Executive Board.

Leadership Evaluation: President Obama

Leadership is the art of getting people to achieve more together than they would independently. This is challenging for any leader but as the scope of the role increases and the impact of mistakes rises, it puts enormous pressure on leaders to get it right. In that context, how is President Obama doing in his first six months on the job?

Knowledge@Wharton recently examined President Obama's leadership style asking whether his ambitious agenda is too broad and diffuse, or whether it's energizing and indeed exactly what is needed in today's highly connected and challenging economic and political world.

Personally I think the President inherited a gigantic mess across a number of fronts and has aggressively tried to tackle many things. He has done a solid job of explaining how it's all connected but the timing is challenging with high unemployment, fear, and record deficits and debt. It's the same for any leader: make sure your priorities feel obtainable and energizing for your team by helping show the big picture, a roadmap for achieving them, and emotional support to inspire.

Obama's personal style also comes under scrutiny in the article and among citizens. He's the Joe-Cool President, a young, technologically savvy, seemingly unflappable leader who doesn't have to rattle swords to make progress. He seems to actively view Congress as a peer and lets them do the heavy lifting on legislation, coming in at the end to help seal deals. Some have said this delegates too much, others feel he is not being specific enough on his key focal points, and others have simply said that's he's more pragmatist than ideologue. Personally I think Obama's challenge is that his amazing campaigning style raised expectations so high that no human being can obtain them. I suggest that he continue to stay highly visible, talking about his one key initiative (health care) until it makes the necessary progress. When that's done, he can shift his attention, at least in terms of media focus, to something else while reminding us of the progress made across a number of initiatives. This will allow him to leverage his selling skills while not overwhelming people.

What are your thoughts on the President's leadership style?

Netflix's Approach To HR - Different and Interesting

Culture

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From Tech Crunch: "Ever since Netflix’s awesome vacation policy was revealed to the public (basically, there is no policy, it’s take the time you think you need), the company’s work policies have been of interest to people. A new 128-page presentation called “Reference Guide on our Freedom & Responsibility Culture” was recently sent around the company, and then put on SlideShare, where the blog Hacking Netflix found it.

The presentation, which you can see for yourself below, is as interesting as any 128-page document can be. If you read it over, about half-way through, you’ll probably start wishing you worked for Netflix. This was meant to be an internal document for employees to read, but it’s also one hell of a recruitment pitch.

Early on, a lot of it deals with workplace efficiency, and not being afraid to let someone go if they’re not doing their job. The idea is that if someone just wants to do mediocre works, that’s fine, they’ll get a nice severance package. It extends this into an emphasis on effectiveness over effort — the company doesn’t want to necessarily reward people who stay late versus those who don’t, but get the same amount of work done. It then turns to some internal policies including management best practices. And then to retention practices — making sure the company pays the top people a high enough salary that they’ll never want to leave.

There’s a big emphasis within the company on salary, rather than stock options and bonuses. The thought is that you should give the employees as much money as possible up front and let them decide what to do with it.

This is all pretty interesting stuff for a fairly large, publicly-traded company. The emphasis is obviously not to act like other big companies do. Given Netflix’s recent successes, it would seem that the strategy is working. And yes, there is stuff in there about the vacation policy."