Category Archives: B. General / Theory

086 – Why does worker productivity remain low?

Worker productivity is the output of goods and services per hour worked. In the broad terms of an industry, productivity is the gross output of industry sales divided by the number of workers allocated to produce the output.

After World War II, worker productivity in the USA improved significantly due to the investments made by companies in the technological advances of the period. Increasingly, American products were in high demand as much of the rest of the world rebuilt after the war. The US government provided educational opportunities largely free of cost to returning service personnel, who then entered the workforce with improved skills. Typical of the times, firms retained and invested profits in their growing businesses. It was a period that is now remembered fondly as being a golden age in the American homeland. During the period 1947-1973, non-farm worker productivity grew at a robust 2.8 percent per year (according to the Bureau of Labor Statistics).

By contrast, the last decade (2007-2016) has seen non-farm worker productivity grow at an anemic 1.2 percent per year. Granted, the USA (and much of the world) was working its way out of a deep recession during the period, but that may not fully explain the low rate of productivity growth. Productivity growth has been weak, and getting weaker, for decades in most industrialized countries. If it continues at this pace, living standards in the USA and highly developed countries around the world will stagnate for most workers.

Economists have provided a number of competing explanations to try to explain what is going on:

1. management strategies that worked in the past have been widely implemented and may no longer contribute to productivity (e.g., efficiency improvements like downsizing, re-engineering, KPIs, etc.);

2. the slow down in capital investment following the financial crisis of 2008 has probably contributed to low productivity;

3. measurement error may be a factor, since the measurement of productivity is notoriously difficult;

4. a delay or lag in productivity gains from any investments in new technology (which may be realized in coming years);

5. a fall in wages across the globe during the recession has put pressure on workers compensation in the USA;

6. the psychological pressures on workers that do not feel secure in their current position;

7. continued weak growth in demand; and

8. the continuing shift from a manufacturing to a service-based economy.

The above explanations generally reflect common beliefs among economists about the nature of the current problems surrounding productivity.

Now let me focus on another possibility — the underlying negative effect of current management practices on productivity and worker engagement. As Gary Hamel (London Business School) has pointed out, many organizations remain inertial, incremental, and insipid in the face of the creative destruction going on in the world economy. The top-down, command and control, and bureaucratic nature of most organizations is hampering innovation at a time when innovation is key to survival and growth.

Clayton Christensen (Harvard Business School) has found another management behavior that is limiting innovation and growth. It relates to the financial metrics (e.g., IRR) being used in public companies. First, Christensen outlines three common types of innovation:

1. Market-creating innovation. This type of innovation creates growth in the economy as it discovers ways to take expensive products that have limited appeal and makes them widely available at lower cost to a mass market. The evolution of the computer from the mainframe to the personal computer, to the smartphone, is an example. The benefits of this type of innovation in the financial metrics are apparent only in the long term (5-10 years), while there is likely to be a short-term decrease until the investments pay off.

2. Sustaining innovations. This type of innovation makes good products better but doesn’t create growth, due to the substitution of new for old. For example, if you buy a Toyota Prius hybrid, you will not be buying a Camry.

3. Efficiency innovations. This type of innovation tries to do more with less, through downsizing, rightsizing, and other cut back measures. It generally eliminates jobs but frees up cash. The benefits of this type of innovation are apparent in the short term in the financial metrics.

Since efficiency innovations provide short-term results which can be seen quickly in the financial metrics, but market-creating innovation only pays off in the long term, it is the efficiency improvements that usually win out. This too can help explain low worker productivity in recent decades.

A recent article in Harvard Business Review (March 1, 2017) noted that great companies obsess over productivity rather than efficiency, since the benefits of efficiency improvements have now played out. Despite weak top-line growth in many years, the 1990s and 2000s saw the earnings growth of S&P 500 companies run nearly three times the rate of inflation due to improvements in efficiency; however, starting with the quarter ending March 31, 2015, S&P 500 earnings began falling and has remained negative ever since. Without top line growth, continuing efforts to achieve improvements in efficiency eventually hit a proverbial brick wall. The same HBR article found three fundamental tenets of a productivity mindset that executives need to understand:

1. Most employees want to be productive, but the organization often gets in the way;

2. A company’s talented “difference makers” are often put in roles that limit their effectiveness; and

3. Employees have plenty of discretionary energy that could be devoted to their work, but many are not sufficiently motivated to do so.

As is often the case with this podcast, we have once again found a need to reinvent management for the 21st Century and beyond. Efficiency improvements have worked their way through companies in recent decades, but have taken a significant toll on future growth. The current path on which many public corporations find themselves is not sustainable. Now we need to create corporations that invest for the future, in workers and their work, by providing the freedom and the tools to do creative and innovative work. It seems that innovation is the only likely path out of the current low productivity regime.

To find this path, I recommend a new management approach that we have discussed before on this podcast, and which is described in my 2017 book, Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

References & Links:

1. Link to Gary Hamel’s blog
2. Link to Clayton Christensen’s talk
3. Mankins, Michael. 2017. “Great companies obsess over productivity, not efficiency.” Harvard Business Review, March 1, on-line edition.
4. Chandler, Charles G. 2017. Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness. Powell, OH: Author Academy Elite.

085 – We are all knowledge workers now

Peter Drucker predicted in his 1959 book, The Landmarks of Tomorrow, that the most valuable assets of a 21st Century institution (business or non-business) would be knowledge workers and their productivity. In this episode, I explore this idea, and how it has played out (since we are almost 60 years downstream from Drucker’s prediction). Not only was he largely right, but I argue that we are all knowledge workers now due to the nature of our present reality.

This is also our last episode of 2017, and I take the opportunity to look back on what has been presented in the podcast in the last year or two, and consider whether 2018 will continue in a similar vein. I also mention some new offerings that I am considering for the coming year and request your inputs.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

084 – Three reasons management is broken (but can be fixed)

If we need fresh evidence that management is broken, we only have to look at the 2017 numbers on worker engagement from Gallup. Only 21% of employees strongly agree that they are managed in a way that motivates them to do outstanding work. Overall, 33% of US workers report that they are actively engaged with their work.

Management’s seeming inability to consistently engage workers in their work stems from three primary causes, in my view:
1. management retains goal setting as one of its primary roles;
2. management focuses their attention on efficiency rather than effectiveness; and
3. management acts as if compensation (pay, in its various forms) is a more powerful motivator for workers than intrinsic reward (internal motivation).

In short, management is applying problematic last-century management approaches (largely designed for manual workers rather than knowledge workers) to this century’s problems.

What to do? A new and unconventional approach to management promises to fix these problems (termed Management by Positive Organizational Effectiveness). It provides a process to transform an uninspired organization into a truly great organization.

Within the new approach, the goal of every organization is the same, that is, to be effective within its environment. It means that an organization serves its environment (exchanging benefits with it) and is rewarded in return. High powered executives are not needed to set goals when every organization has the same goal. This has the added effect of focusing management attention primarily on effectiveness, setting efficiency aside until effectiveness has been achieved. The new approach empowers workers at the periphery to ask how they can serve their environment more effectively today, and frees them up to do their best, most creative work.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

Reference:
1. Gallup. “State of the American Workplace.” 2017. (Link)
2. Chandler, Charles G. 2017. Become Truly Great: Serve the Common Good through Management by Positive Organizational Effectiveness. Powell, OH: Author Academy Elite.

083 – The Organization Whisperer

In this episode, I interview David Childs, Ph.D., who is the author of The Organization Whisperer: The 12 Core Actions that Ripple Excellence through your Organization. Join us as we explore key areas of focus for any organization.

The twelve core actions described in the book are:

    1. Communication;
    2. Worth;
    3. Purpose;
    4. Family;
    5. Decisions;
    6. Plan;
    7. Do;
    8. Measure;
    9. Processes;
    10. Resources;
    11. Relationships; and
    12. Habit.

Charles G. Chandler, Ph.D.

Links to resources mentioned in this episode:

The Organization Whisperer (the website)
The Organization Whisperer (the book, on Amazon.com)
Organization Diagnostic Tool

081 – Effective entrepreneurship

In this episode, I explore three ideas about effective entrepreneurship:

  1. the most effective entrepreneurs create a platform for others to build upon and benefit from, one that users can interact with on a continuing basis (e.g., Apple’s iPhone, Leggos, Skype) ;
  2. effective entrepreneurs understand the game they are playing (i.e., what constitutes visible progress and success); and
  3. effective entrepreneurs enlist a hierarchy of benefits in their offerings (e.g., financial, economic, social, psychological).

Overall, effective entrepreneurship is about successfully converting the entrepreneur’s supply-side intentions into demand-side behaviors by continually testing for expected responses to a hierarchy of benefits among potential demand-side actors.

Charles G. Chandler, Ph.D.

080 – Adventures in Capitalism

Consider how an upbeat story about a business (Shake Shack) was distorted on social media, eliciting some negative responses in which people question the underlying motivation of management. There seems to be a dominant, and rather negative narrative that plays in the back of people’s minds about capitalism, providing a context in which to interpret daily events. Clearly, capitalism is not working for everyone.  This episode suggests a partial answer.

Charles G. Chandler, Ph.D.

079 – Claim a niche and serve it

It is said that the fox knows many things, but the hedgehog knows one big thing. Whether generalist or specialist, an organization needs to claim a niche and serve it so well that the competition is irrelevant. In doing so, an organization can carve out a continuing role in its ecosystem. This episode explores (among other things) how Marriott, Hyatt, Hilton and Starbucks have created a mutually beneficial ecosystem that serves convention goers in downtown Atlanta (USA).

Charles G. Chandler, Ph.D.

078 – The Power of Story


In this episode, I tell three stories which illustrate the power that this form of expression can have. Stories knit threads together, shape how we see things, and derive power from the outcomes that they describe. If you are going to change the world, it helps to first illustrate how to change a small part of it in a story.

Charles G. Chandler, Ph.D.
email: cchandler@AssumptionAnalysis.com

076 – The Boomerang Principle (encore)

Lee Caraher
Lee Caraher

In this episode, I welcome back Ms. Lee Caraher, CEO of Double-Forte, a public relations and marketing services firm with offices in San Francisco, New York, and Boston. Lee was first on the podcast in June 2016 (episode 021) to talk about her first book (Millennials and Management). She has written a second book entitled, The Boomerang Principle: Inspire Lifetime Loyalty from your Employees. By engendering a lifetime of loyalty from former employees, leaders can see them “return” in the form of customers, partners, clients, advocates, contractors, and even returning employees.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

Reference:
Caraher L. 2017. The Boomerang Principle: Inspire Lifetime Loyalty from your Employees. New York, NY: Bibliomotion.

Amazon affiliate link:

075 – The new assumptions of management

In his 1999 book, Management Challenges for the 21st Century, Peter Drucker explored the assumptions that pertain to the study of management. They are important, he wrote, because they “largely determine what the discipline assumes to be REALITY.” Now, almost 20 years after Drucker wrote these words, it is worthwhile to consider how well the assumptions he mentions still hold up today.

To begin, Drucker notes that since the study of management first began in the 1930s, two sets of assumptions held sway among most scholars, writers, and practitioners regarding the REALITIES of management. The first set concerns the DISCIPLINE of management:
1. Management is Business Management.
2. There is – or there must be – ONE right organization structure.
3. There is – or there must be – ONE right way to manage people (command & control).

The second set concerns the PRACTICE of management:
1. Technologies, markets and end-users are given.
2. Management’s scope is legally defined.
3. Management is internally focused.
4. Management’s scope is defined by political boundaries.

Drucker believed that every one of the above assumptions had been replaced by 1999 (when he was writing), as follows:
For the DISCIPLINE of management:
1. Management is the specific and distinguishing organ of any and all organizations.
2. The best structure for an organization is one that fits the task to be accomplished.
3. One does not manage people. The task is to lead people. The goal is to make productive the specific strengths and knowledge of each individual.

For the PRACTICE of management:
1. Neither technology nor end-user can be taken as given, they are limitations. The foundations are customer values and customer decisions regarding their disposable income.
2. Management scope is not legally defined, but rather operationally defined (embracing the entire process). It is focused on results and performance across the entire economic chain.
3. Results of any institution exist only on the outside. Management exists for the sake of the institution’s results. It has to start with the intended results and has to organize the resources of the institution to attain these results. It is the organ to make the institution, whether business, church, university, hospital or a batter women’s shelter, capable of producing results outside of itself.
4. National boundaries are important primarily as restraints. The practice of management – and by no means for businesses only – will increasingly have to be defined operationally rather than politically.

Now, almost 20-years on from Drucker’s writings, I would submit that the following updates (in italics) could be made to his list based on Management by Positive Organizational Effectiveness (advocated in this podcast):
For the DISCIPLINE of management:
1. Management is the distinguishing organ of any and all organizations in the business, government and nonprofit sectors (i.e., throughout the economy). It is also required when several organizations cooperate to tackle specific problems in society to support the common good.
2. The best structure for an organization is the one that is most effective in serving its chosen environment.
3. One does not manage people. The task is to lead people. The goal is to make productive the specific strengths and knowledge of each individual (and to make the specific weaknesses of each individual irrelevant).

For the PRACTICE of management:
1. Neither technology nor end-user can be taken as given, they are limitations. The foundations are customer values, customer decisions, and customer behaviors surrounding the use of their disposable income.
2. Management scope is not legally defined, but rather operationally defined (embracing the entire process). It is focused on results, performance, and effectiveness across the entire economic chain.
3. Results of any institution exist only on the outside. Management exists for the sake of the institution’s results. It has to start with a portfolio of expected external outcomes to be generated by its offerings and has to organize the resources of the institution to attain these results. It is the organ to make the institution, whether business, government, or nonprofit, capable of achieving results outside of itself.
4. National boundaries are important primarily as restraints. The practice of management – and by no means for businesses only – will increasingly have to be defined operationally rather than politically.

What we have tried to do today is to revisit some of Drucker’s wisdom from about 20 years ago to see how it fairs today. In general, it has held up well, but some new ideas have come on the scene, and further updates may be warranted.

Charles G. Chandler, Ph.D.
email: cchandler@AssumptionAnalysis.com

References:

1. Drucker P. F. 1999. Management Challenges for the 21st Century. HarperCollins: New York, NY.

2. Chandler, C.G. 2017. Become Truly Great: Serve the Common Good through Management by Positive Organizational Effectiveness. Author Academy Elite: Powell, OH.