Companies operate for stakeholder’s benefits, but isn’t it shareholders?

Since quite some time I have been thinking about writing this post, and when I found the article on Davos 2010, I realized this was the moment. When I started my professional life, people used to tell me companies had four key stakeholders, shareholders, employees, clients and suppliers. Today, frankly, most CEO’s only focus on the first, the shareholder, and receive insanely large bonuses while leaving employees out of a job, pushing suppliers to bankruptcy and barely looking at customer satisfaction. How have we gotten there?

As long as the world was bifocal (liberalism and communism), the people oriented values were present in our cultures. People were respected, their well being was part of what enterprises and businesses were looking for. Since the collapse of the communism, the egoism has taken over. I think about myself and don’t care about others. That’s the ultra-liberalism that is currently being pushed by businesses. Companies have completely lost their social responsibilities. Oh, don’t understand me well, we have never spoken as much about social and environmental responsibilities, but it’s all related to avoiding that the supplier uses child or slave labor. The basic thinking around the employee for example has completely been lost.

I already hear you. The writer of this entry is a dangerous communist or socialist. Actually that can’t be further of the truth, but I strongly believe in a social liberalism where a company takes its responsibilities towards all four stakeholders.

The current trend results in employees no longer finding any bonds with their company, ready to jump from one to another as soon as a good proposal comes along. Loyalty is quickly disappearing, and with it the knowledge that makes the company unique. While in the short term, the large profits obtained by firing employees and squeezing suppliers, will benefit the shareholder, in the long run, many companies will collapse as they have lost their essence.

Sure a shareholder should be rewarded for the money he/she invests in the enterprise, the employee should be rewarded for his/her time, creativity, initiatives, energy and enthusiasm he devotes to the company, and the supplier should be allowed to make a reasonable profit.

The CEO’s that have driven this future catastrophe will no longer be there when the disaster strokes. In the mean time they will have made hundreds of million on the back of employees and suppliers. What a strange world we are in, where people are no longer responsible for their acts.

Compensation & Recognition

Many things can be said about how people behave, but recognition and compensation make many people do the right thing. So, the fundamental question is how we distill the right collaborative behaviors through the use of compensation and recognition. In the area of compensation, we obviously refer to variable financial compensation in one way form or shape. This is often called bonuses, and frankly these days that word does not have a very good press. Measuring people on collaboration, as referred to in the previous entry, and combine the achievement of appropriate goals with rewards help distill behaviors. However, there are a couple elements to keep in mind:

• First the objective needs to be achievable and the person needs to have the feeling he/she can influence the objective
• Second, the reward needs to be significant enough it gives the person the impression he/she is valued. Never forget that in many countries reward is taxed, resulting in the beneficiary absolutely not receiving what you pay.

Most people are in great need of recognition. According to Maslow’s Hierarchy of Needs, once people have addressed their physiological and safety needs, they are looking for a belonging and esteem. Recognition helps them feel part of a group and being respected. In today’s environment where most people in business have their physiological and safety needs covered, belonging to a group, being respected and growing their self-esteem covers their needs, and prepares them to unleash their creativity, their problem solving capabilities and all those other elements that maximizes their value for the business.

Recognizing somebody is often easy. But I am so astonished it is regularly overlooked by managers. Saying to somebody “Job well done”, pointing out the value he/she added, congratulating her/him in front of people should be a natural to management. It is a major aspect of leadership, one that helps getting the best out of people and increases their loyalty to the company and to management.

Compensation complements this as it is a more tangible way to recognize. It complements recognition, and should, in my mind, be kept for great achievements. It should not become a given. In my mind, the current bonus discussion demonstrates that compensation needs to be managed very carefully, or things are getting out of hand. The team and collaboration aspects should always be included. I remember my frustration when selling projects that the sales person received a lot of recognition and a big bonus, while myself, the project manager, and my team, who really had established the credibility in front of the customer, barely received a thank you.  That does not foster collaboration.

So, in a nutshell my rules are simple, recognize and say thank you, reward when truly remarkable, but always look at the core team as one, not a bunch of competing individuals.

Collaboration and Measurement, the best enemies

We started this journey on collaboration in large enterprises discussing how organizational structures can stand in the way as far as collaboration is concerned. Today I would like to focus on a second aspect and this is measurement. To make it simple and to quote Dave Packard, a great west coast entrepreneur, “Tell me how you are measured and I will tell you how you behave”. And he is so right.

Indeed, people are willing to work together, naturally they have a helpful attitude. But in the end, the “what’s in it for me” question comes up. And frankly, if the measurement do not line up, bad luck. When times are good and the measures easy to achieve, there is not too much of an issue, but in the current environment, where the recession (officially ended though) is making achieving numbers difficult, it often is lonely out there.

I have seen companies giving sales people numbers by product lines, resulting in those numbers being achieved at the detriment of what is right for the customer. In particular, when the business units are strong, when they are the profit centers, developing an integrated approach to customers may be difficult. Top management should spend valuable time engineering a simple, but at the same time compelling measurement system to ensure they achieve the behaviors they want their company to portray. And it is that behavior that will foster collaboration.

Calculating bonuses on the success of the company (e.g. achieving objectives, profitability) may be seen as a way to foster this integrated approach, but it is important to think about how the individual contributor can influence the numbers he is measured on. If he is one of 300.000 employees to take a number, can he really influence the objective he is given? And so, will he act to improve this measure?

For sales people in particular, it is key to balance the measures that are part of the variable pay and the ones that provide bonuses. variable pay ones have the tendency to be the first ones to focus on, while the bonus ones are nice to have.

In a nutshell, developing a measurement framework fostering collaboration is feasible. However it requires a good dose of sound judgment and engineering at top management level, which ids often unfortunately forgotten.

Organizational structures often hinder collaboration

Large enterprises often have complex organizational structures based around business units and product lines. Customers on the other hand are looking at them as one organization and are astonished of the difficulty they have to collaborate amongst business units. The first of the 5 key elements I highlighted in my previous post is the organizational structure. The revenue generating entities are typically supported by shared service centers such as finance, human resources, marketing, IT and others. Each BU (business unit) has its own budget and is supposed to manage its own environment.

Many companies use an allocator key to spread the costs of the shared services over the business units. And here starts the debate. What key is used? For example, HR costs are often shared by headcount and this makes sense. But in my company, IT costs also got allocated by headcount, arguing that the more people were working in a department, the higher the IT costs. This worked well till some BU’s started to outsource production, using important IT resources to track operations with partners. They increased IT, but their headcount reduced, resulting in lower allocations. This obviously does not improve collaboration between the BU’s as some feel they end-up paying for others.

Shared services are required to ensure consistent operations across the organization at the lowest cost, but ensuring a fair mechanism is used to ventilate the costs of these services across the whole organization is critical to foster collaboration not just between a shared service and a BU, but also between BU’s. In our organization , we have moved away from allocations all together. We rather request BU’s to deliver a given “contribution margin”. The BU now has under its responsibility the management of the costs it controls, while corporate manages all shared services costs and funds those from the accumulated contribution margins. It eliminates the allocation debate, but replaces it with a debate about why one division’s contribution margin should be higher than another.

Another area of friction between BU’s is related to the place of the sales force. As pointed out earlier, customers expect sales teams to represent the whole company. So, should the sales force be a shared service, or should there be sales teams in each BU? Frankly, there is no right answer here. If a central sales force is used, debates about the cost of that sales force and the lack of representation of a particular BU in front of the customer, will be at the center of the debate. On the other hand, if each BU has its own sales force, the representation of the integrated portfolio of the company is lacking. If you are an IT company for example, despite the fact the customer wants his business problem to be resolved, it is difficult to explain the hardware BU the customer is not interested in blade servers for example. He will buy them if the sales person can demonstrate they resolve his problem. They are a consequence, not a selling argument. But frankly, this is heresy for hardware BU people.

There are many other examples where the organizational structure hinders collaboration. This is actually a never ending story and continuous adaption is required to address this. Strong leadership at the top will guide the organization through this. But we will come back to that element in a later post. Have you had experiences like the ones described hear? Share them, we can all learn from it.

5 key elements to promote collaboration

I couple weeks ago, I wrote an entry on this blog titled “Promote Collaboration in large Enterprises” where I pointed out I had been requested to present on the subject. I have progressed my thinking since and found 5 key areas playing an important role in building such collaboration. I’d like to spend the next entries to discuss each of those in a little more details, and do hope this can spur a conversation between us on the subject.

But before doing so, let me highlight which those 5 areas are so you have a structure of what I intend to blog about over the next weeks. Once the presentation has taken place, I also intend to give you some feedback on the discussion. So, what areas did I come up:

• Organization & Finance. Large companies are build around business units or product lines. Does the enterprise architecture, in other words, its organization foster collaboration? How are the budgets set-up and does this push them to competition or collaboration? Where are profits and revenues recognized?
• Measurement. This is the second leg. How are business units or product lines measured? Are those measurements inclusive of collaboration, or exclusive? Are they pushing entities to collaborate or to compete?
• Compensation & Recognition. Business Units or Product Lines work through people. How are those compensated and recognized for their success in collaborating with other BU’s?
• Culture & Leadership. Is collaboration core and center to the culture of the company, or is it a nice to have? How does top management behave? How often is the collaboration subject addressed by management, are they leading by example?
• Tools & Techniques. Tools support collaboration and make it easier for people to work together. Using specific techniques and approaches, collaboration can be made easier. However, it is a myth that tools & techniques on their own push companies to collaborate.

Actually what I discovered is that none of these 5 key elements can foster collaboration on their own. All 5 are required for collaboration to work across business units. Common vision and objectives need to be established and buy-in by the organization as a whole is required. Collaboration is not something that is established once and for all. A continuous reinforcement and effort is required for it to work within a large enterprise. When the economy works well, it’s easier than when times are hard. This might be a reason why the subject is popping up today. So, stay with me. We’ll look at this in more details.

A Cloud Platform for Data Collaboration?

Hewlett-Packard today announced the availability of a Cloud Computing Platform for the Manufacturing Industry on the back of its product recall partnership with GS1. The product recall approach consists in a cloud based service providing access to product track and trace information across the supply chain and is primarily focused at the FMCG and Retail industry. It allows them to collaborate and exchange data across the ecosystem while not having to invest in a private environment to do so. The real interesting part is that, working with GS1, HP immediately secures a consistent identification of the products, as this is precisely what GS1 stands for. Otherwise one could say this has already been done, but not in the cloud neither with GS1.

The benefit for companies is that the service allows a faster and more effective way to identify the products that have to be recalled, resulting in both a cost and a risk (liability) reduction. The service is available on a subscription basis.

Now, could this be a first example of how companies could collaborate in the future? Rebecca Lawson seems to hint that way. I also found a blog entry on the HP site labeled “A Cloud ecosystem for inter-enterprise visibility” that hint into the same direction. What additional services could be delivered, well Mick Keyes hints at counterfeiting efforts and hazardous materials as other areas.

If I understand correctly and the platform consists in a development and runtime environment that provides data, analytics, management and security services, then I can see many opportunities. In a couple earlier blogs I spoke about the need to exchange structured data across companies. This might be the backbone that would allow us to do just that. Let’s dream for a moment and assume we have available a service allowing us to share information across our supply chain without requiring upfront investments, just “pay-as-you-go”. This would allow us to more easily motivate our partners to participate and experience for themselves the advantages of sharing. It would demonstrate how sharing allows to reduce inventory, to optimize capacities etc.

To date it may just be a dream, but definitely worth monitoring how HP will evolve this platform.

Promote Collaboration in large Enterprises

After a good break where I had the opportunity to discover other cultures, I’ll come back to that, I found an interesting challenge at my return in the office. One of my clients want me to present on how to promote collaboration in a large enterprise that has grown through acquisitions. I point this out as each of the business units has its own culture, making things a little more interesting.

Many large companies are actually confronted with this problem and although many have tried most have failed of really getting things going. The first issue is that each business unit is ultimately measured on its results. When things get though, as in the current environment, business units have a tendency to focus on their own objectives, ignoring anything else. And one can argue that, ultimately, collaboration will give them more benefits than working in isolation, it does not matter, they focus on their own objectives. Dave Packard used to say “Tell me how you are measured and I will tell you how you behave”. He is absolutely right in this. It’s all about measurement and the associated incentives. So, you could say, lets change the measurement and reward everybody on the company successes. Yes, that would work, but would dilute responsibilities. Who is responsible to maximize the revenues from each of the business units.

Developing the incentives to ensure maximal revenues for each business unit while maximizing collaboration, taking advantage of the “power of the portfolio”, is really an art. It consists in establishing measures and rewards that include both aspects. The use of balanced scorecards may help in this process. But there is another element to take into account. It is not enough to incent teams to work with each other, its also important to ensure they know of each-other and can easily find the appropriate resources to collaborate with. Particularly in large enterprises grown through acquisitions, this is absolutely not trivial. One approach I have seen in companies is the use of a “buddy program” where employees from different business units help each other understand the workings and culture of the other unit. It works effectively to integrate an acquisition for example and it helps harmonizing the cultures.

A more intriguing approach to finding the right resource in a large organization I have seen lately is a program from HPLabs, called WaterCooler. WaterCooler is a social networking tool focused at helping employees find the right resources (information and people) to address a particular problem. It aggregates shared internal social media and cross-references it with an organization’s directory.

As I progress with the preparation of my presentation, I’ll share some more thoughts with you. Feel free to share yours with me. We may be able to find the approach that helps companies to break down the Chinese wall they have between their BU’s.

A Vision for an Integrated Collaboration Environment

Developing the global community I talked about in my previous entry, turns out to be a little more challenge than originally expected. This has nothing to do with the community itself, but with how the developers are working together. Indeed, we are developing this with people from different companies, sitting on both sides of the ocean. So, you would think we just need a little collaboration space and everything would be resolved, isn’t it. Well wrong, first the traditional file sharing tools do not allow to share some types of files (eg. java scripts generated by our PowerPoint to Flash conversion tool), do not allow us to make documents publically available (e.g. Google Docs and PDF documents), and I could go on like this.

As the world becomes global, increasingly companies and people need to collaborate virtually. Unfortunately the tool providers (Google, Microsoft, Yahoo) are looking myopically in silos, addressing collaboration aspects in isolation. What we really need is for a company to take the problem from a different angle, starting by asking itself what is required to collaborate and then develop the integrated environment to just do that. So, let’s think a minute, what do we need to collaborate?

• Well, first we need to share documents either with a know community, with a larger group who’s names and e-mails we do not all have, or be made publically available. These documents may just be looked at, may be downloaded, may be commented upon (with notes or voice) or may be edited by particular members of the community. Obviously we would want to keep track of any activity around the documents.
• Second, we may have to interact, either asynchronously or synchronously, using text, sound or video, or any combination of those. Interactions may be private (between two people) or with a group. During those interactions, documents may have to be referred to and shared. Data may be made available also.
• Third, we may have to work together at a common task, in that process we may share real-time information, documents, and we may use a common application that can be on one of our systems or in the cloud. Here again this can happen between two people or with a larger group.

A number of supporting functions should be available. These include a group calendar (that links with the calendars of the members to identify availability etc.), action item lists, a parking lot, participant information, version control, etc.

Most of what I describe here is available in one form or another on the internet, but there is  no consistency, no easy way to cobble it all together, and even if we managed, we would spend our life login on to different systems. Why is nobody looking at the collaboration needs of globally dispersed people and addressing their needs, rather than continuously coming up with incompatible tools.

Web 2.0, use within the enterprise?

As I mentioned in my last entry, I am currently traveling in Asia. I had the opportunity to meet with a series of business leaders and in at least two occasions, the use of the web 2.0 tools came up. If you are not familiar with the term web 2.0, you may have heard about blogs, wiki's, instant messaging, facebook or linkedin etc.

The point that was raised is whether it makes sense to start using the web 2.0 tools in the enterprise. My feeling is absolutely yes, and for two reasons. First, as the younger generation, who grew up with IM, SMS and facebook, comes on board, taking advantage of their familiarity with these tools, it is a tremendous way to increase the communication with them. Whether they are part of the enterprise, or part of the customer base, they are expecting you to communicate with them using those tools.

But there is a second reason, and that is what I call the "virtual coffee corner". Let's remember the time we were all located in the same office and we got all the gossip and informal communication happening at the coffee corner. That quickly became an essential communication vehicle in the company. It allowed the informal network to develop itself. And we all know and experience the importance of that informal network.

Unfortunately, the desk sharing, home office, tele-working etc. which many of our companies have put in place, have tried to kill the informal network, the gossip and the "corridor radio" as we used to call it. That in return has reduced the loyalty of many employees towards their enterprise. I dare to advocate the importance of rebuilding those networks and would like to suggest the web 2.0 tools give us a unique opportunity to do this. They will allow us to rebuild the strength of the enterprise.

Many CIO's today are afraid of the security risks many of those tools are posing. So, they cut out the IM message streams, make Skype illegal, and discourage the use of any tools such as linkedin, plaxo and others. I believe it is a fundamental mistake. Yes, we need to ensure the IT environment security, but we also need to implement the tools that maximize the productivity of the organization. Web 2.0 is definitely part of that. So, let's start the web revolution within the enterprise!