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I'm Sorry I Broke Your Company

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It’s the People, Stupid!

Karen Phelan is sorry. She really is. She tried to do business by the numbers—the management consultant way—developing measures, optimizing processes, and quantifying performance. The only problem is that businesses are run by people. And people can’t be plugged into formulas or summed up in scorecards.

Phelan dissects a whole range of consulting treatments for unhealthy companies and shows why they’re essentially fad diets: superficial would-be fixes that don’t result in lasting improvements and can cause serious damage. With a mix of clear-eyed business analysis, heart-wrenching stories, and hard-won lessons for both consultants and the people who hire them, this book is impossible to put down and impossible to ignore. Karen Phelan and other consultants may have “broken” your company, but she’s eager to make amends.

“Finally, an author challenging our broken management models who has credibility—she has been there. Karen Phelan not only explains why the emperor—our sacred ways of managing—has no clothes but provides us with insightful alternatives that promise to add real value to our organizations and the people that make them function.”

—Dean Schroeder, award-winning coauthor of Ideas Are Free

“Funny, irreverent, and outrageous, this book is making a deeply serious point: talking to actual people and figuring out how to help them work together better is what’s going to make organizations stronger, not another PowerPoint presentation.”

—Rosina L. Racioppi, President and CEO, Women Unlimited, Inc.

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12 Chapters

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1. Strategic Planning Can’t Predict the Future: Strategy Development Is a Vision Quest

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In 1980, Michael Porter, a Harvard professor and founder of the Monitor Group consulting company, published a book called Competitive Strategy: Techniques for Analyzing Industries and Competitors and helped usher in the modern age of business strategy consultants that exploded in the ’80s and ’90s. While boutique consultancies, namely Bain and the Boston Consulting Group, were formed in the ’60s, either their client base was limited or their models dealt with managing cash. Actually formulating a business strategy was something of a black art consisting of one part analysis, one part experience, and a whole lot of magic—kind of like a corporate version of the Native American drug-induced rite of self-discovery, the vision quest. However, businesses tend to prefer analysis, structure, and tangibility over magic, art, and lucid dreaming. Michael Porter’s book not only codified how to create a strategy, with step-by-step instructions on how to do the analysis, it also codified what the strategies should be.

 

2. Make Sure You Reengineer the People, Too: Optimized Processes Only Look Good on Paper

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Process reengineering, and with it, process automation, is where I’ve spent a good chunk of my career. This was the type of work I did when I began consulting, only we called it “operations improvements” before the term “process reengineering” was coined. Although my memories of many client projects all those years ago are a blur, I do remember my first client engagement well because it taught me a great deal about business problems. The client was a small refrigerator manufacturer that was suffering from excess inventory, long lead times, and an inability to meet customer orders. The business had changed over the years from just a few products to a wide-ranging product line that offered customers their choice of features and even some custom designs. The complexity of the operations had increased while the plant configuration had stayed the same. My manager had sold the client very expensive, cutting-edge software to improve its scheduling ability, a large investment for a company of this size. He had promised the software would optimize the company’s plant floor and dramatically improve its production volume. Unfortunately, after following his advice and implementing the software, the company saw only slight improvements. This became a big client satisfaction issue, especially because the company was a client of other services our consulting firm offered, and the partner in charge of the manufacturing practice had to fly out and try to smooth the situation over. The result was that my manager was effectively banned from the client’s site, and we offered to perform a free analysis of the company’s operations and write a requirements definition for an integrated manufacturing, inventory, and financial information system. Eventually, this system would solve the company’s problems because it would integrate its operations.

 

3. Metrics Are the Means, Not the Ends: Numerical Targets Are Measure-mental

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Because of the obsession with financial measures that arose in the 1980s, someone was bound to note that it takes more than just managing the financials to run a business. Those someones were Robert Kaplan and David Norton, who published a paper on the balanced scorecard (BSC) in the Harvard Business Review (HBR) in 1992. The premise of the BSC is that four categories of measures are needed to manage a business successfully—financial, customer satisfaction, internal processes, and innovation and learning. Ideally, the measures in these four categories would be determined by the business’s strategic goals, and the scorecard could be used to operationalize a strategic plan. The BSC would include both internal and external objectives for implementing the strategy with numerical targets that would let you know your progress. See figure 2 for an example.

This BSC aligns an organization around creating premium products with the purpose of improving profits, revenues, and market share with those as the designated financial measures with end-of-year targets. The other categories help operationalize the strategy: process goals include the number of premium products in development, percentage of budget devoted to premium products, and defect rate; customer goals include satisfaction rate, retention, and percentage who purchase the premium lines; and learning goals include customer service training hours and R&D training budget. (There are no innovation goals in this example.) All these measures contribute to achieving the premium provider market leader status as the strategy.

 

4. Standardized Human Asset Management Is a SHAM: How Performance Management Demoralizes the Performers

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While the ’80s and ’90s saw the rise of strategy and process consulting, the new millennium brought with it a focus on human asset management. The last piece of the command-and-control structure of the strategy, processes, and metrics framework is the people required to enact it. Although “human asset management” and “human capital management” were the original names given to the practice of managing a company’s people, they have largely been replaced with “talent management” due to the industrial connotations of human assets. Some people don’t react well to being labeled similarly to a line item on a balance sheet. However, the legacy of that term is the ubiquitous corporate declaration of “People are our greatest asset!” which you’ll find on every company website and in every annual report.

Human asset management systems include a slate of human resources processes and methods, including performance management, incentive compensation, competency development, career planning, leadership development, career and leadership coaching, succession planning, and learning management. In this chapter, I will cover only performance management and incentive compensation, and I will discuss other aspects of HAM in the next three. (I couldn’t resist the SHAM title.)

 

5. I Am a Manager, and So Can You: Why Is the Successful Manager’s Handbook 609 Pages Long?

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At various times during my consulting career, I’ve found myself providing management training. The demand for management skills training seems to be perennially high. Having a bad manager or a bad relationship with a manager is among the most frequent reasons why people leave companies, so good management is a vital concern for businesses. Plus, improving employee performance is one of a manager’s main responsibilities, and that is not an easy thing to do. Fortunately, there are lots of consultants in this business and, with them, lots of management theories and models. I still have a handy-dandy envelope of quick reference cards that I helped develop at Gemini years ago that show a variety of models:

• Coaching for behavior change (five steps)

• Giving effective feedback (seven components)

• Receiving feedback as a gift (six steps)

• PACR (paraphrase, ask, check, respond) listening technique

• AIR (acknowledge, investigate, reinforce) model for dealing with resistance

• Trust formula

• Partners chart

 

6. Stop Perpetrating Talent Management on People: Albert Einstein Was Not an A player

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By now you may have realized that I haven’t personally broken any companies, at least not that I know of. But consultants have broken companies, and I would like to talk about the most famous case—Enron. Although the role of Arthur Andersen in helping Enron with some creative accounting was widely reported, another consulting company that was deeply embedded at Enron, McKinsey, managed to escape the scandal relatively unscathed. I mentioned the book The War for Talent earlier, but I neglected to mention that one of the reasons this book has fallen out of favor is that it uses Enron as one of its main case examples. Jeffrey Skilling was a former McKinsey employee, and he implemented many of the management principles written about in this book at Enron. (To be fair, the McKinsey consultants faulted Enron because the company didn’t implement these principles correctly.)

While most of the recommendations in this book are relatively mild (create a talent mindset, develop and coach employees, be more creative in recruiting), one principle alarms me and is the one that contributed most to Enron’s downfall—differentiate your employees and then manage them accordingly. The book recommends sorting out your A, B, and C players and treating them differently. A players (typically, your top 10–20 percent) should get most of the rewards and be given as much latitude as possible to pursue opportunities and advance their careers. A players determine the future of the company and because of their constant need to be challenged, are likely to leave if neglected. C players (your bottom 10–20 percent) should be coached until their performance improves or be let go. While most of the attention should go to As and Cs, B players should be affirmed that they are still worthy and should be developed as needed. This differentiation method is sometimes referred to as the “star system” or “rank and yank,” depending on whether you are in the top or the bottom rank. While I doubt that McKinsey was the first company to devise this kind of differentiation, it did create this popular terminology and propagate this philosophy as a best practice.

 

7. Great Leaders Don’t Fit the Models: Steve Jobs Failed My Leadership Competencies

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Now that we have eliminated the sorting, ranking, and labeling, we have a very big problem. We have no way to identify the future leaders of the company. Without a leadership pipeline in place, a company will find itself without competent leaders and will crash and burn in a fiery blaze of mediocre management only to become the next Harvard Business School case study on what not to do. Continuing the legacy of the talent war, talent management consultants will often cite this potential leadership crisis as the reason for all those HR systems. Without them, how do you identify those A players who will become the future leadership of your company? Let me put on my own consulting hat for a moment. That person whom nobody knows, does her job well but sticks to her own responsibilities—probably not a potential leader. That other person, the one everyone knows, who volunteers for everything, and who loves leading teams and projects—yep, that’s the one with the potential. There you go. I have assessed leadership potential. That will be $2,500, please.

 

8. Out of the Boxes, Charts, and Spreadsheets: How to Think Without Consultants

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Frederick Taylor, the father of scientific management, was among the very first management consultants and perhaps the first true management guru. His 1911 book, The Principles of Scientific Management, was a best seller for several decades, and his ideas influenced the management of many big American corporations. He was famous in his day, giving many lectures, consulting to well-known companies, and providing advice to the government. Perhaps his greatest legacy is that he helped develop the curriculum at the Harvard Business School, where he also lectured. Even today, the ideas of “Taylorism,” associated with monitoring and measuring and finding the one optimized way of performing a task, have outlived the man by a century. Matthew Stewart, in his book, The Management Myth: Why the Experts Keep Getting It Wrong, said about Taylor, “In place of verifiable data and reproducible methodologies, he provided only anecdotes, embellished with speciously precise numbers and arcane formulas of indeterminate provenance.” Apparently, Taylor was full of bull: performing back-of-the-envelope calculations that had no bearing in reality, overestimating benefits, overcharging his clients, and proclaiming the success of his methods by fudging data—providing the blueprint for the modern management consultant.

 

Resource A: A Measure of Truth

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Resource B: The Method of Truth

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Although management is not a science, we can still learn from science. In fact, I love science, and I love learning from it. What science can most offer to businesses is not theories but the method in which science is conducted. The purpose of science is to derive the truth. Physics seeks to find the underlying laws governing the physical world, from atomic particles to the origins of the universe. Biology seeks to understand life. Chemistry seeks to understand how molecules interact. Science is not about creating a set of laws; it’s about understanding how things work and changing the laws based on new information. Many people seem to confuse ideologies with scientific theories. Theories change, while ideologies do not. Astrology and creationism are not science. They are static belief systems that don’t seek to find underlying truths. They try to bend theories to conform to the beliefs. Our current state of management “science” also doesn’t seem to be very interested in finding the truth.

 

Resource C: Bibliography

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Akpose, Wole. “A History of Six Sigma.” IEEE-US Today’s Engineer. December 2010. http://www.todaysengineer.org/2010/Dec/six-sigma.asp.

Alicke, Mark, and Oleysa Govorun. “The Better-Than-Average Effect.” In The Self in Social Judgment, edited by Mark Alicke, David Dunning, and Joachim Krueger, 94–116. New York: Psychology Press, 2005.

Alter, Adam. “Why It’s Dangerous to Label People.” Psychology Today. May 17, 2010. http://www.psychologytoday.com/blog/alternative-truths/201005/why-its-dangerous-label-people.

Amabile, Teresa and Steven Kramer. The Progress Principle: Using Small Wins to Ignite Joy, Engagement, and Creativity at Work. Boston: Harvard Business Review Press, 2011.

Bassi, Laurie J., and Daniel P. McMurrer. “Investing in Companies That Invest in People.” Bassi Investments. January 2002. http://www.bassi-investments.com/downloads/Article_hr.com.pdf.

Bennis, Warren. On Becoming a Leader. Reading, MA: Addison-Wesley, 1989.

Bercovici, Jeff. “Why (Some) Psychopaths Make Great CEOs.” Forbes. June 14, 2011. http://www.forbes.com/sites/jeffbercovici/2011/06/14/why-some-psychopaths-make-great-ceos/.

 

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