Hidden innovation: the best kind?

I suspect almost everyone is fascinated by Apple. For some, the company is a peculiar cult that holds its acolytes in thrall to blocks of glass and metal. For others, it is a benchmark against which all types of innovation can be measured (and usually found wanting). I am particularly interested in the things that are often missed in Apple’s innovation story.

The video below shows Steve Jobs addressing an audience at Apple just 8-10 weeks after he rejoined the company in 1997. The main purpose of the presentation is to show the new ‘Think Different’ advertising campaign. That’s not the bit that interests me though. Within the first minute, Jobs sets out the priorities: “We’re trying to get back to the basics of great products, great marketing, and great distribution.” I think the third of those is the most significant hidden contributor to Apple’s sustained success since then.

Jobs goes on to say (at 2’08”):

We have not kept up with innovations in our distribution. I’ll give you an example — I am sure it was talked about this morning. We’ve got anywhere from two to three months in our inventory, in our manufacturing supplier pipeline, and about an equal amount in our distribution channel pipeline. So, we’re having to make guesses 4/5/6 months in advance about what the customer wants. And we’re not smart enough to do that. (I don’t think Einstein’s smart enough to do that.) So what we’re going to do is get really simple and start taking inventory out of those pipelines — so we can let the customer tell us what they want and we can respond to it super-fast.

(By all means watch the rest of the video, but that is all that is relevant for this post.)

Those responsible for two of the three basics identified by Jobs were already part of Apple. On the product side, the designer Jony Ive had been promoted to Senior Vice President of Industrial Design, and Jobs himself led Apple’s marketing efforts. Within six months the third element, distribution, would be taken on by a new appointee — Tim Cook.

Just one year after this video, Apple launched the iMac: designed by Ive, marketed by Jobs, and built by contract suppliers appointed by Cook. The same combination underpinned successive new Apple products — new generations of iMacs, the iPod, MacBooks, the iPhone and iPad. Tim Cook became Apple COO in 2007, and was appointed CEO in succession to Steve Jobs just before Jobs died in 2011.

The Apple products we (some of us) use today may still be Ive creations and also bear the imprint of Steve Jobs’s personality in their marketing, but their success in the market is just as much Tim Cook’s doing. In a profile from 2008, he is described as “demanding and unemotional:”

Think of Cook’s contribution like this. There are two basic ways to get great profit margins: Charge high prices or reduce costs. Apple does both. The marketing and design drive consumers wild with desire and make them willing to pay a premium; Cook’s operational savvy keeps costs under control. Thus Apple is a cash-generating machine. Cook has called the company a place that is “entrepreneurial in its nature but with the mother of all balance sheets.”

Apple’s high profit margins are driven by two forces: the company is obsessed unlike any other of its size with creating products that it thinks people will love, and its supply, production, distribution and retail processes are managed more tightly than any of its competitors.

Some aspects of that tight supply chain management appear to be readily copied. Others are more innovative and unique to Apple, but depend on constants like long-term relationships with suppliers and choosing simple options rather than complex ones, even if those are exorbitantly expensive. Early examples included block-booking all available air cargo slots in advance of the iMac’s first Christmas sales period, and shipping iPods direct to retail customers from the manufacturing facilities in China. There is also no competition between product, marketing and distribution. They work as a team:

That mentality—spend exorbitantly wherever necessary, and reap the benefits from greater volume in the long run—is institutionalized throughout Apple’s supply chain, and begins at the design stage. Ive and his engineers sometimes spend months living out of hotel rooms in order to be close to suppliers and manufacturers, helping to tweak the industrial processes that translate prototypes into mass-produced devices. For new designs such as the MacBook’s unibody shell, cut from a single piece of aluminum, Apple’s designers work with suppliers to create new tooling equipment.

Can other businesses learn from this aspect of Apple’s success? Possibly very little:

How Apple is managed is one of its enduring mysteries. The idea that a company with $235 billion in sales is managed with a single P/L is fascinating in many ways.

There are obvious lessons about the need to keep inventory as low as possible, but otherwise I think the main thing is not to concentrate on obvious innovations. It may feel easier to identify novel products and services that could find a valuable place in the market, but just as much (if not more) profit might flow from making the hidden parts of the business work better. Given how different these hidden parts might be, each firm has to make its own choices.

The upside of partnership

I have been known to suggest that law firms might benefit from a shift away from the partnership model. I am broadly sympathetic to Bruce MacEwen’s critique of this form of ownership in an environment of change. In particular, the collegiate nature of partnership can make it hard for law firm leaders to assert unambiguous authority, as Laura Empson’s research has shown. However, there are some recent indications that the legal partnership still has much to offer.

Facade or whole?

Notwithstanding the doom-laden prognostications from a variety of directions (including an assertion that 75% of the current UK 200 law firms could disappear in the next five years), legal partnerships appear to be very resilient. Surprisingly few large firms failed during the financial crisis. There have been failures and those added to mergers and other closures have contributed to a reduction in the number of law firms overall. According to the Law Society’s figures, there has been a fall in the number of firms every year for the last four years — going from a peak of 10,413 in 2010 down to 9,542 in 2014. At the same time, the number of solicitors employed in those firms has gone from 86,748 to 90,306 (the majority of that increase occured in the last year reported).

More evidence of the resilience of traditional law firms came at the end of last week in a report published by Jomati Consultants: Re-engineering Legal Services: How traditional law firms are finally learning to embrace alternative working practices. (I don’t have a copy of the report itself, so I am relying on vicarious accounts of it from Legal Futures and Legal IT Insider.) Jomati identify three areas where firms are changing to meet the market:

  • the rise of the law firm-operated low cost centres,
  • gradual acceptance of client-facing legal project management and process improvement
  • engagement of contract lawyers in addition to law firms’ permanent fee earners.

Jomati reports that firms are taking these steps in response to client demand and to reflect shifts in the market as a whole. They also suggest that many firms are attacking these changes in a piecemeal fashion, partly because of resistance amongst partners.

This second point goes to the heart of the difference between partnership and a more corporate structure. Someone once described a university to me as being staffed with “people who think they are self-employed, and act accordingly.” Much the same is true of partnerships. Partners sometimes resent, and therefore resist, firmwide initiatives that they think undermine their own practices — especially when they also think their clients’ interests are at stake. In many situations, partners’ closer proximity to their clients will mean that their assessment of what is needed might be more realistic than a firmwide approach mandated from central management. More importantly in this context, partners with their clients’ interests at heart might take action to improve the way they work with clients in advance of the firm. Where some partners resist, others will want to be pioneers; partnership allows that possibility.

Recent history is littered with major corporations whose failure came quickly when the market moved on without them — common current examples include Kodak and Nokia. The reasons for those collapses are hard to disentangle, but they often include a failure to recognise and react to environmental changes. The monolithic nature of large corporations makes it hard for anyone other than a small group of leaders and senior managers to take the steps required to change the company’s direction. (Those at a lower level who see the future coming are usually best advised to leave altogether.) By contrast, partnership spreads power more widely. Even a fairly junior partner may have sufficient autonomy to change the way they and their junior colleagues work with their clients — introducing process improvements or changing resourcing models. If they are successful, the whole firm will be able to see and copy. That is the kind of change that Jomati reports seeing across the sector.

It is probably not a coincidence that two of the most significant law firm collapses after 2008 — Dewey & LeBoeuf and Halliwells — were brought about, at least in part, by actions taken by central management. They were probably, therefore more akin to corporate failures. Closer adherence to traditional partnership principles might have helped those firms weather the economic storm better than they did.

Partnership is not necessarily the only way to manage a law firm. It may not even be the best. But it has shown a degree of resilience that corporate structures may lack. On the other hand, the firmer direction that can come with a steeper corporate hierarchy can allow faster and more lasting change across the business. (Will that change always be positive?)

Lawyers moving into business services: good or bad?

Practising lawyers sometimes find themselves moving into operational roles in other areas of their firms. This tends to occur most in areas of business services (especially knowledge management, but also business development, risk, HR and learning, or procurement) where legal skills are relevant or where no particular expertise is needed. (IT, finance and facilities tend not to attract lawyers, except in management roles.) This flow raises two separate questions for me: are lawyers right for these roles; and should the firm be looking externally, rather than moving people within its walls?

Dalí's easel, Castell de PúbolThe Lawyer’s website today features the story of Linda Zell: a litigation lawyer at Olswang who became the firm’s head of corporate responsibility (CR). Her progress into that role is a really good example of how moves like this come about. Her introduction to CR came from a need to add a paragraph to a client pitch document, and then grew over time to a real interest, then a drive to see it promoted properly within the firm. After a time juggling CR and lawyering, she is now responsible full-time for leading Olswang’s CR strategy. One of the firm’s partners is quoted, “we asked her to write a paragraph on CR and she set up a whole department instead.”

This kind of transition is not unusual — in fact, I did something similar when I moved into a lead knowledge role. Firms need to be aware that good and bad things can flow from such a move.

The upsides

On the positive side, when a firm’s lawyer moves into a new business services role, the firm gets the benefit of someone who knows how the firm and its lawyers work. They therefore have an edge over outsiders who might take a while to get under the skin of the business. This may be particularly valuable in roles like KM or CR, where a significant part of the job involves careful influencing and persuading, so that understanding people is at a premium.

Another benefit is that the lawyer who moves into such new roles is likely (as I think may be the case with Ms Zell) to be especially driven to succeed. When a firm is taking a new direction, this zeal can be very useful.

Most firms consider it important to support their people develop their careers. This might easily be done within existing career tracks. Lawyers may move smoothly from trainee to partner, whilst business services professionals might advance from entry-level roles through management to leading a function. It is much harder, and therefore more laudable, for a firm to show its commitment to career development when someone makes an unusual move such as from lawyering into business services.

The drawbacks

The areas where lawyers tend not to take roles, such as Finance and IT, often depend heavily on technical expertise that lawyers do not have. This is becoming true of some other areas (such as HR and marketing), which have previously been destinations for lawyers moving out of practice. In newer areas, such as CR and KM, firms still have a choice to appoint people with experience and expertise in the field in preference to their own lawyers.

Appointing an expert from outside might allow the firm to be more confident that they were getting the benefit of the most up to date thinking in the area, which could mean that the function could mature much more quickly than if it were led by an internal lawyer. In some situations, the firm’s partners may be more respectful of acknowledged expertise as opposed to a more familiar, but untested, internal appointment.

External appointees might also their own networks of people in similar roles who could swell the ranks of the team quickly if that is what the firm needs. It may take some time for ex-lawyers to be able to develop their new teams around themselves.

Getting the good without the bad

Fortunately, there are ways to get the benefits of internal appointments without the downsides. (Or at least minimising any negative impact.)

One critical step would be to get external validation of the firm’s choice to create the new role in the first place. It may be too easy to give in to the pressure of a lawyer to create a new business services function for them to lead. Most disciplines have a community of consultants who can advise on the adviseability of embarking on this new activity. They might also help to define the purpose of the function, and help the firm to develop a role profile for the ideal leader. If the internal candidate matches this role profile, then the firm would know it was on the right track.

The new appointee might also benefit from external support, and good firms should budget to pay for this. No matter how enthusiastic someone is, starting up a new support function is a hard task. Almost inevitably, in this scenario, the new appointee is the person in the firm who knows most about the job. Without an internal mentor or coach, they may not get the right kind of constructive support and flounder quickly. If they are able to draw on expertise from outside, the firm will get some of the benefits of making an external appointment.

On the whole, then, I think firms should continue to help their lawyers move into different areas of the firm, but they need to be aware of the possible risks and manage them sensibly.

(In case it needs saying, I have provided support of the kind described for knowledge roles. Please get in touch if you are new to a knowledge role, or if your firm is thinking of creating or extending its knowledge function.)

Measuring success

I have written before on the difficulty of measuring the return on investment in knowledge activities. Prompted by a couple of recent conversations, I have been pondering the issue a little more. What follows is a rumination on how successful knowledge activities might be identified within a law firm, especially over a period of time.

It's a prickly questionIn the past, some knowledge folk might have responded to a question about the value of the work they do by pointing to volumes of documents in a know-how database. All this demonstrates is the amount of work done — it doesn’t help people understand how the firm benefits. Nick Milton helpfully summarised some ways in which business might benefit in a blog post earlier this year (together with survey results showing which measures were most commonly used).

In addition to the kind of successes that Nick points to, I have also been fond of using qualitative assessment of knowledge activities. Often it is easier to ask people (whether inside or outside the business) about their experience of KM work. Their responses serve a double purpose — as well as indicating how successful past activities might have been, they can also suggest fruitful directions for the future.

However, I have become more doubtful about the merit of highlighting one-off successes or of depending on how people feel about a service that is designed to make them feel good. These may give an impression of how well certain parts of the knowledge function perform, but they don’t help with a wider picture.

After reflection, I think the answer can be found in an analogy I have used before. Back in June 2014, I likened knowledge management to farming.

In order to improve the yield of the organisation (by whatever measure is appropriate), managers need to enhance people’s natural capabilities (fertilising for growth), while reducing the impact of adverse conditions (sheltering crops from bad weather). That isn’t possible without a deep understanding of the environment within which the organisation works, the natural capabilities of the people within the organisation, and the value of whatever the organisation produces.

The key to measuring the value of our knowledge activities is yield. If the set of things that we do to improve productivity are successful (allowing for the fact that some may be more successful than others), the firm’s yield will improve.

The next question is how yield might be measured in a law firm. The answer here, I think, depends on whether you want to consider the firm in isolation or compare it with the market as a whole. Financial data that is available within the firm may not match what is made available for publication.

Generally speaking, productivity is an expression of the ratio of outputs to inputs. At the national level, the UK Office for National Statistics derives labour productivity estimates by dividing measures of output by some measure of labour input. In professional services, productivity is measured by the turnover of companies adjusted for average wage rises in the sector.

Within a firm, inputs and outputs can be measured precisely. Firms know how many people they employ, how much they are paid, and how long they work. They also know which of these people contribute directly to the firm’s turnover. Productivity could therefore be measured as a ratio of turnover per person (full-time equivalent or otherwise) or per hour worked. Such a measure would not be useful for comparison over time, since inflation might increase fees without a real increase in yield. Using the ratio of income to salaries would smooth out such variations, since inflation in fees is likely to run at a similar rate to pay inflation.

Over time, then, a firm can see how productivity changes from year to year. As law firm knowledge management efforts tend to focus on the income-generating side of the business, examining the productivity of fee-earners in isolation over a significant period might help to show whether those efforts have had a real impact.

If comparison beyond the firm is needed (does our productivity match changes in the market?), then firms need to find publicly-available datasets. The most easily-accessible data is collected annually by The Lawyer (in the UK) and The American Lawyer (in the US). Both the Lawyer UK 200 and the AmLaw 100 calculate revenue per lawyer (RPL), which can be used as a proxy for more precise measurement of productivity. Because this measure does not take account of inflation, comparison between firms is only possible in a single year. On its own, that comparison is almost worthless. Factors such as the firm’s employment profile (does it depend on low-cost associates or is it partner-heavy in high-cost locations?), its client types, or work profile, little real insight is possible. At best, firms might pick comparators they know to be broadly similar.

There is a useful way to use published figures for revenue per lawyer. That is to compare the trend in a firm’s performance with a larger set. For example, the median RPL figure for the top 100 firms can be plotted against time. That line is likely to ascend, with occasional dips when the wider market was under stress. (I would use the median in preference to the mean, in order to reduce the impact of particularly high- or low-performing firms in any given year.) When the RPL for a single firm is plotted alongside the whole set, one can see whether the profile of the line matches that for the whole set (performance in line with the market) or whether it rises more steeply (outperforming the market) or more shallowly (underperforming against the market).

This graphical information, when combined with what is known inside the firm about any special factors, allows the firm to understand better how well it is doing in the market and what might be causing any difference in performance. The special factors could include investment in knowledge activities, as well as significant client wins or losses, so some caution is still needed.

I suspect very few firms do this kind of meaningful analysis. In a later post, I want to explore the implications for law firm support teams of not having this kind of insight.

Where should you aim?

I have written a few times over the years about aim and focus. Targets continue to be an issue that bedevils traditional law firms. Lawyers are given targets for time recording. Partners are given targets for billing. Business services professionals are given targets for cost reduction (or, at least, budgeting). Worst of all, firms sometimes frame their strategies in terms of targets.

Blue skyAt the weekend, I started reading a long article on Tesla Motors and electric vehicles. It contains a huge amount of insight on the topic and, unsurprisingly, is very thought-provoking. Embedded in the middle of it are a couple of quotes from Franz von Holzhausen, Tesla’s chief designer, and Elon Musk, the founder and CEO.

I asked [von Holzhausen] what it was like to come to Tesla after having spent years at more established car companies. He described the difference like this: “A company like GM is a finance-driven company who always has to live up to financial expectations. Here we look at it the other way around—the product is successful when it’s great, and the company becomes great because of that.” (This mirrored what Musk had told me earlier in the day: “The moment the person leading a company thinks numbers have value in themselves, the company’s done. The moment the CFO becomes CEO—it’s done. Game over.”) Von Holzhausen went on, saying, “Another difference is that at other companies, engineering comes first—a design package is prescribed on the designer and they’re told to make it beautiful. At Tesla, design and engineering are assigned equal value, and Elon keeps them opposed to each other.”

Tesla’s view (which I think is shared by Apple and some other highly successful businesses) is that clearly-defined purpose and great product will deliver great numbers. On the other hand, businesses that focus purely on the numbers run the risk of failing to demonstrate purpose and value in their markets, and of creating products that nobody wants. RIM, the Blackberry manufacturer, might be the best current example of this.

Demand is a complicating factor. Do you create something that people want or need? Many businesses survive despite being soulless and number-driven simply because what they create is perceived as essential. Some businesses may have clear purpose and great products, but fail because nobody really wants their product instead of someone else’s.

Very few firms provide a must-have service. Those that do (because of geography or specialism) can afford to be number-focussed. The rest, whose service has to look more attractive than everyone else’s, need to show the market why they are better. Concentrating on numbers won’t do that. Clear purpose and great service will. The bravest (of either type) will follow Tesla’s example and ignore the numbers altogether.

Innovation: the importance of ‘why’

My friend Mary Abraham has written a characteristically perceptive post about the lessons innovators should learn from the pyramid builders. It is both interesting and useful.

Mary’s lessons can be summarised thus:

  • Innovate by using a series of disciplined experiments that are thoughtfully designed and carefully executed.
  • An experiment that is not examined for lessons learned is a failure — regardless of its actual outcome.
  • As you innovate, collect and share your knowledge to support further innovation by others.
  • Ensure that there is a clear and compelling vision of the intended results of innovation effort, and complement this with clear communication throughout the project.
  • Choose a sponsor who knows the value of second chance in the hands of an intelligent innovator.

Organisations that say they are innovative often display some of these characteristics. Very few manage all of them. In my experience, the one that is most commonly missing is the fourth — clarity of vision. Without this, successful changes can only be haphazard.

Curiously, the need for vision is often ignored (or assumed) in popular accounts of innovation processes. Consider this presentation by Tim Harford, for example.

Harford’s account contrasts two modes of innovation: long shots and marginal gains. Long shots are illustrated by game-changing great leaps forward like the Supermarine Spitfire, penicillin, and the work of Mario Capecchi creating the ‘knockout mouse’. They tend to be fuelled by the vision of their inventors or creators, but that vision fits within a broader social or community goal (improvements in military strength, reductions in disease and infection, or deeper understanding of genetic causes of ill health).

Marginal gains, on the other hand, are exemplified by the approach of Sir Dave Brailsford when he was performance director of British Cycling and team principal at Team Sky:

examining every aspect of performance to extract small advantages, which collectively add up to a decisive winning margin.

Some of the changes that Brailsford prompted are obvious (making bikes more aerodynamic, and so on), but the most eye-catching were things like: ensuring the team had their own tailored bedding rather than using those provided by hotels (so that their posture while sleeping didn’t affect performance the following day); requiring all team members to use hand-sanitisers (so that the risk of infections was reduced); or heated shorts (worn by track cyclists between races to make sure that their muscles stayed in the best condition to ride in semi-finals and finals).

Brailsford himself explains the philosophy in this video.

It is not an accident that the video combines two aspects of the management change that Sir Dave Brailsford brought to British Cycling. The CORE principles that he describes created a culture within the team that supported marginal gains. The culture defined the focus for the team: to do everything necessary to win races. That culture and vision helped people understand why marginal gains were important, and also gave them the means to describe why a particular suggestion would contribute to success.

The idea of marginal gains has become commonplace within organisations wishing to promote innovation. I have seen it used by law firms as a way of prompting people to submit ideas for improvement. Sadly, however, few firms have defined the purpose for which improvement is sought. There is no vision. (The cultural piece is often also missing, which doesn’t help either.)

Without clarity of vision about what needs to be improved, firms using marginal gains as a tool will often find that ideas are generated in a scattergun fashion. When the firm can’t express its own vision, it is left to individuals to find their own. Those individual perspectives aren’t always well-informed, and so can be misleading. Some people won’t be able to identify a purpose at all, and so will be unable to suggest changes (even though they might have some great ideas when prompted). As a result, fewer suggestions are forthcoming and, at worst, some of proposed ideas will pull in such different directions that little or no overall improvement is possible.

Make it easier for clients by standing for something

Last week, the people of the United Kingdom made their quinquennial choice. The outcome was a majority Conservative government for the first time since 1997.

Curving rightFor some people (probably fewer than in previous generations), politics are easy — they cleave to the same party loyally from election to election. Parties have nothing to gain from courting these voters. The rest, whose choices are undecided until late in the day, need to be persuaded. This, as Dave Trott points out, is a marketing problem.

The point about marketing is, it’s not about what you want to say.

It’s about what your market (people) needs to hear.

What they need to hear are two things:

1) Clear and Simple

2) What makes you different

Bad marketing people don’t understand this.

Dave is discussing Ed Miliband’s promises set in stone. He shows that each of the six promises is neither clear nor simple, and none of them marked out the Labour Party as different from the competition.

What you are left with is a message “Carved In Stone” that tries to say everything to everyone.

It avoids differentiation in case it offends anyone.

It isn’t marketing, it’s just a list: a mind dump.

Thinking that a gimmick, like carving something in stone, is more important than what you carve in stone.

Many commercial organisations fail Dave Trott’s marketing tests too. Law firms may not be the worst offenders, but the legal sector as a whole has always struggled with differentiation. (We can leave clarity and simplicity for another day.)

The week since the election has been filled with navel-gazing. All the parties, apart from the Conservatives (who won much more convincingly than the pollsters predicted), the SNP (which won every seat in Scotland, bar three), and the Greens (who won many more votes than anticipated), are trying to work out what went wrong. For most of them, I think the answer is simple: either the electorate couldn’t tell what you stood for, or they could and they didn’t like it.

Much the same is true in commerce. Potential clients and customers need to know what they are buying. If you can’t tell them why your service fits their needs better than the other firms, they won’t buy it. You can’t even rely on existing clients remaining loyal. If another firm comes along that can say more clearly why what they do is better, your clients will jump ship.

Differentiation requires you to stand for something distinctive that clients are willing to pay for. You need to risk offending some people (by being too expensive or too cheap or too Lean or too bespoke…) in order for the clients that fit you to know that they fit. You might end up with a market share as small as the Greens, but at least you can be confident about its stability.

Do you have the capability to differentiate?

As the global financial crisis started to hit law firms half a decade ago (coupled in England and Wales with major regulatory change), there was a sense that this would see off more than a few firms. In fact, whilst there have been some notable failures, and some smaller firms have collapsed or been swallowed up, my sense is that the BigLaw landscape looks much as it did ten years ago (allowing for mergers). Within that group, however, there are significant differences in performance. Some firms have merely survived, but others have thrived. Survival, often on lower profit margins than before, is not a sustainable business model. But what causes the difference — how can firms thrive instead?

Crags, Palace, ParliamentThe short answer is that the most successful firms stand out for some reason. And, crucially, the market must value that.

The marketers call this differentiation. Being different alone is not enough — the difference needs to be attractive.

That just pushes the problem to the next level — how can firms differentiate? And more importantly, how can they sustain the advantage they get from standing out?

While the market was good to firms (which was probably true for most of the last century), it was enough for lawyers to be good at the law and well-connected with clients. That is no longer true.

Almost any form of differentiation depends on good use of the firm’s knowledge. This is not simply knowledge management as firms have traditionally understood it, but development of the firm’s knowledge capability. This is defined by David Griffiths as:

…the ability to deploy knowledge to constantly design, develop, deliver and maintain products and/or services that its current and future stakeholders will find valuable – put another way, an organisation’s Knowledge Capability is an indicator of its adaptive capability (its ability to anticipate (sense) and react to change).

This is more forward-looking than traditional knowledge management, which in law firms tends to concentrate on gathering and redeploying what is already known. That work is still necessary, but it is only sufficient to support survival — no firm will thrive merely by doing what it currently does more efficiently.

Importantly, the knowledge needed for an organisation to thrive is not just that which is known by the leadership. In fact, those at the top are likely to have such a partial view that their knowledge is actually suspect. Hayek made this point in a very different context as long ago as 1945 in his essay, “The Use of Knowledge in Society”:

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

Hayek’s response to this problem in economics was to argue that only the market can coordinate and value knowledge properly. The alternative for him, a single controlling mind, could not do the job. Unlike Hayek, however, we can see other mechanisms for drawing out what is known and applying it. We can address this as a social problem, rather than an economic one.

This approach requires the firm to use the knowledge of as many people in the firm as possible, as well as to engage with those outside (clients and suppliers). This insight will help define first of all what is important — which things are valued most or will have the greatest impact. Once that is understood, the firm needs to learn about itself — what is it capable of? Only then is it possible to decide what actions might be taken. Those actions need to be testable, so that the firm knows what works and what doesn’t.

It isn’t enough simply to ask direct questions to draw out this knowledge. Lawyers are particularly prone to entrained patterns of thinking, which means that the leadership will only hear what people expect them to want to know. Direct questioning also risks people putting a gloss on their experiences in order to make sense of them. It is more important that decision makers are able to see and evaluate for themselves the experiences reported by a wide variety of people. I use a variety of Cognitive Edge methods, rather than traditional facilitation techniques, as they are much better at showing decision makers what is really going on.

Firms that take this approach, rather than merely copying others or being browbeaten by their suppliers, are likely to find a better niche for themselves and so thrive for longest.

If you are interested in knowing more about the methods that can be used, please feel free to get in touch.

What ‘focus’ really means

I have written previously about the need for organisations (and individuals) to choose a focus. The idea also came up in a meeting I had this week. During that meeting, I recalled something Jony Ive said about Steve Jobs and his relentless pursuit of focus. It’s in this video.

What focus means is saying ‘no’ to something that — with every bone in your body — you think is a phenomenal idea, and you wake up thinking about it, but you say no to it because you’re focusing on something else.

Ive mentions keeping some ‘sacrificial’ ideas that he could claim to have rejected, but Jobs knew that he had no passion for those — for him, focus demanded that one could only follow one passion.

This is a rare discipline, but it is worth pursuing. To do otherwise is to try riding two horses.

Improving yield: an agricultural metaphor for organisations

An old way, overgrown As a schoolchild, despite my mother’s agricultural ancestry, my understanding of farming was as basic as the writer of the classic hymn, “We Plough the Fields and Scatter.” The hymn suggests that all one needs for a plentiful harvest are some good seeds, a ploughed field, and a beneficent god to bring the right weather.

Nowadays, I know better. Although plants and animals may be capable of reproducing and growing naturally, the science of agriculture has allowed farmers to improve yields hugely. As an example, drawn from the FAO’s database, the following graph shows the increase in cereals production in Europe over the last 50 years. (Not shown is the fact that the area under cultivation has actually fallen over the same period.)

Cereals

This scientific approach is merely the culmination of millennia of human development, from the Neolithic period onwards. As we learn more about how other species can be manipulated, or the earth itself can be nurtured to support greater yields, it is possible to feed a growing population.

Modern farming therefore depends on the advances in techniques and materials that are available. Cereal crops are now planted by GPS-guided seed drills that allow the farmer to ensure that as little seed as possible is wasted — no longer is it scattered wantonly. Plant and animal species have been bred for improved yield over centuries. A modern farm is as far from natural growth as it is possible to be.

By comparison, many aspects of our human organisations depend heavily on trusting people to work effectively. Worse, where we aim to make improvements, there is often little science behind them to show that they will actually increase productivity. As a result, people often struggle with poorly designed systems that obstruct their efforts to work better.

I keep coming back to agriculture as a metaphor for the way we manage organisations. I think it is especially relevant for knowledge management. In order to improve the yield of the organisation (by whatever measure is appropriate), managers need to enhance people’s natural capabilities (fertilising for growth), while reducing the impact of adverse conditions (sheltering crops from bad weather). That isn’t possible without a deep understanding of the environment within which the organisation works, the natural capabilities of the people within the organisation, and the value of whatever the organisation produces.

A manager armed with that understanding (and an awareness of how the different factors change over time) can test different approaches to improving productivity, based on the factors that are known to make a difference. Managing in this way means that time isn’t wasted on things that won’t make a difference (even if the organisation next door is using them). Testing different techniques allows success to be observed — unsuccessful interventions can be stopped without significant loss.

In fact, many business interventions are more like cargo-cult science. They are often copied wholesale from other organisations (where they may or may not have been successful). They often fail because they don’t fit the way people want to work. (This is especially the case with KM systems.) But when they fail, the blame falls on the people who failed to change to fit. Too often the cry goes up, “how can we make people use the system?”

I have never heard a farmer blame the wheat for not growing properly when they try out a new cultivation technique, or the cows for a reduced milk yield when the feed mix is changed. Farmers often complain, but they know to change the right things when they can. Organisational leaders too often complain about the wrong things and therefore make the wrong changes. Poor organisational productivity is as often a product of a badly managed environment as improved agricultural yields are of painstaking land management.