The third reason why we should focus on outcomes is that doing so tends to make us more strategic.
We know we shouldn’t just focus on activities - that this was a major problem in HR’s earlier incarnation as Personnel. If we focus on activities we tend just to do more of these activities. (If you have a hammer every problem seems to become a nail.)
My best example of this comes from my time working as an HR Director at Ernst & Young when our US firm announced than 90% of all our development activities would be provided by e-learning. It was a disaster and ended up in lots and lots of very boring e-learning (the type of experience which puts many people off e-learning even today despite how far it has improved.) The problem occurred simply because we were developing strategy by solely looking at the activity of learning, not the outcomes we needed to achieve.
The common alternative to just focusing on activities is to try and connect activities and business results, ie to miss the outcome step in the organisation value chain. Unfortunately this tends not to work that well either.
I like to explain this by looking at performance management. I don’t particularly like competency frameworks but i think one benefit they provide is helping to connect performance objectives and training needs. So, if a manager and employee sit down at the start of the year and the performance management system asks a manager to identify six SMART objectives, most managers can give this a decent go. However if the next page of the system asks them to identify training which will help that person achieve their objectives, many managers will struggle - and the person gets no training.
It’s easier if the second page of the system asks what competencies will help the person achieve their objectives. Most managers can do this OK. And then if the third page asks what training does the person need to develop these competencies they can do that too. Result - the person gets more training to support their competencies to achieve their objectives.
The systems are asking the same thing but without the use of competencies there is just too big a conceptual jump between what the person needs to do and the training they need to do it. Competencies help cut down the time and distance between the objectives and make each question smaller making them easier to answer, and providing greater alignment too.
It’s the same with the organisation strategy map. It’s actually quite hard to look at the business objectives and then say what HR activities will support these objectives. It’s a lot easier, and results in better alignment, to ask what outcomes will support and enable these business objectives, and then what activities will create those outcomes.
This also helps ensure that the selected activities are aligned with the particular business needs, ie are best fit, rather than simply best practices.
The third reason why we should focus on outcomes is that doing so tends to make us more strategic.
Well, secondly, as I’ve been suggesting, there are really two value chains within this strategy map - the organisation value chain which covers inputs, activities and outcomes. And the business value chain which covers what I show as business impacts (really operations, customers and financial results.) This is another reason why outcomes are so important - they are the real deliverable of the work we do in the organisation value chain.
It's why Kaplan and Norton refer to measuring human capital (outcome) as the holy grail of managing intangibles.
And it’s why Dave Ulrich suggests that behind most of the ideas he has developed, including the ‘Ulrich model’ (three legged stool) and the use of organisational capabilities lies an increased focus on outcomes: “I wanted to define the roles of HR as outcomes more than activities. I saw a lot of work in HR focused on activities (number of hours of training a leader receives; whether a firm is using 360 degree feedback; if it implements performance based pay or competence based hiring). I wanted to shift the focus to outcomes of the activities.”
It’s therefore a worry that when I review business strategy maps and balanced scorecards with business executives I usually only find objectives and measures for activities, not for outcomes.
Even when I work with HR teams on people management strategies and HR scorecards, I usually find lots of objectives and measures for activities and very few for outcomes.
Ie outcomes are the most important step in our own value chain, but also the one which we put less of attention on.
It’s something we need to change.
I’ve been describing the organisation or HCM strategy map consisting of inputs, activities, outcomes and business impacts. The key leverage point in this system are the outcomes.
Firstly, it’s the outcome step in the strategy map which contains our organisational capabilities - offering businesses the greatest source of competitive advantage today.
If we only focus on activities and business impacts we make it much less likely that our businesses will give due weight to organisational capabilities.
My second best example of the logic I’ve been describing around my arrow model and organisational capabilities is HCL Technology. This comes from former CEO Vineet Nayar’s book, Employees First Customers Second (the picture is a Vineet original he drew for me when we met up.)
HCLT are an Indian IT services firm that have gone through interesting changes in recent years. The stimulus for this transformation was Vineet reading Blue Ocean Strategy (I referred to this as a recent update on Competitive Positioning.)
Vineet was fairly well persuaded by the book but didn’t think it would be possibly to create clear blue water in HCLT’s competitive positioning - what the company does - as IT services is a commodity industry. So instead he decided to create blue ocean strategy in how the company works, ie in its organisation.
He doesn’t use the words but HCPT clearly created differentiated organisational capability - an organisation design which really meant employees were being put first in order to deliver for their customers.
This again has led to some interesting changes but once again, they are only really best fit results of identifying which activities would support the required capability.
This includes ann upside down organisational pyramid with employees being at the top - and it’s not just spin. Managers really do spend a large proportion of their time enabling employees rather than in command and control mode telling them what to do. (This was enabled though an open 360 degree feedback system where if you provided feedback on a manager you got to see their average scores. This transparency generated huge changes in managers’ behaviours.)
HR is also an enabling function rather than a controlling one. (This was brought about through a service ticket approach in which employees can raise tickets about HR processes which constrain rather than enable them, and are also responsible for closing tickets when they decided the problems have been resolved. HR was measured on reducing the time it took to close service tickets and also driving towards zero open tickets. Wow!)
Of course, there is still a command and control structure as well - Vineet needed to be able to tell people just to go and do something (nicely I’m sure) - which is why you can see both pyramids on the picture.
By the way, Vineet’s second big insight was that big change could be brought around by smart small interventions not just by big transformation programmes - ie not by wielding Neptune’s trident but simply by letting small droplets fall into the ocean, coalescing and forming ripples joint together into larger and larger waves - eventually bringing about transformational change.
I’d also like to give you a couple of examples of how the three schools of competitive strategy in my arrow model are impacting businesses. - for example, Zappos provides a great example.
I’ve finished my discussion on the three schools of competitive strategy in my arrow model but wanted to note a couple of other things before moving on.
Firstly, all three schools of thought about strategy rest on differentiation (and cost leadership.) In the capability world, what matters isn’t the best talent but the right talent.
Porter’s concept of trade offs can be useful here too. The concept originates in competitive positioning where Porter suggests that to identify the things we’re going to do especially well within a particular positioning the best question we can ask is what we’re not going to do, ie what we’re not going to worry about. If we don’t identify these too we won’t have the space or the spare capacity to focus on the things we are going to do particularly well. This idea works well for capabilities too.
For example you can compare Microsoft and Cisco. Microsoft puts a lot of effort into recruiting (and sometimes laying off) amazing IT engineering talent, so they scout the world’s best universities looking for this talent. They compete on having the best talent - it’s their organisational capability. Cisco doesn’t play in this space - it takes slightly less amazing talent (stilll very good - A- rather than A perhaps?) but sticthes this talent together into A+ teams. It competes on collaboration - that’s its organisational capability.
Again, strategic HR isn’t about the best people but the right people, but you can only really identify what’s right through the use of organisational capabilities.
Strategic HR is also about differentiating your approach, of the activities you use. And I’ve already referred to this as one of the benefits of focusing on outcomes in the organisation value chain. Once you’ve identified the right differentiation in terms of your people and culture you can then look at what activities will deliver these particular outcomes.
If you do this, you’ll end up very naturally identifying not best practices but best fit approaches which will be right for your particular business but may make very little sense elsewhere.
Finally, remember that there’s also the cost leadership option - there will always be organisations which treat their people badly in order to save costs - at least as long as there are people prepared to work for them.
The multiple value chains I’ve been reviewing give HR a choice. Do we focus on acting as a support function to help the business value chain or do we act as the main generator of strategic value to lead the organisation value chain?
For example do we focus on our participation along with other teams developing a new product, ensuring that we have the skills and resources in place to support that product as it develops (something in which we'll always take a minor role)?, or should we put more attention into increasing engagement or collaboration that might result in a many more new products in the future (and in which we can take the lead)?
To me the choice is clear. Organisational capabilities have more impact in a business than a competitive positioning so the organisation value chain is more important than the business one. Plus HR can add as a leader rather than as a support function.
What’s to choose?
The issue is though that we don’t do this, we don’t act like this. We focus on the business and forget about the organisation. That’s where all this rhetoric about focusing on the business, talking the language of the business, being a business person first HR person second comes from. And it’s the wrong perspective.
Of course we should talk about the business. And we should get involved in that product development opportunity. But we also need to encourage everyone in the business to talk about people, and we need to focus our time on the way these people are managed, developed and enabled.
We need to remember and act on the fact that HR generates most value by focusing on the organisation.
Picture credit = Dave Pickersgill
These two value chains explain why great organisations can exist in rubbish businesses and why I’m not going to worry too much if I present case studies from businesses which are going to or have gone to the wall!
The other support comes from Julian Birkinshaw’s study of management innovation. Birkinshaw is a colleague of Gary Hamel at LBS and you can see a similar perspective in his work.
In particular, in his book, ‘Reinventing Management’, Julian writes about the need to have a management model as well as a business model. We’ll come back to the elements of the management model at a later date, but for now I just want to focus on the need for a separate management model.
Alongside the business model which deals with questions like who does the firm make money (sources of revenue), the management asks about things like how it focuses people on the right things (defining objectives.) And all these questions actually relate quite closely to the organisation slue chain we’ve been looking at.
So is Julian’s management model the same as the ‘organisation model I’ve been writing about. Well, yes, it is. And although I like ‘Reinventing Management’ a lot, it does itself no favourites by trying to draw a distinction between management and leadership which is different to how everyone else understands these two terms and the differences between them.
The book is supposedly about management – about how companies implement their plans. It’s therefore intended to avoid ‘more alluring themes’ such as leadership, change and strategy. However, I don’t think this it does. This becomes particularly clear during the review of IBM’s Values Jam – if there’s anything more focused on leadership than this, I don’t know what it is!
The actual distinction he’s making isn’t between management and leadership, it’s between internal and external, or the organisation and the business. To me, Julian’s management model isn’t a model of management vs leadership, it’s a model of the organisation vs the business.
But I also don’t think a model is a useful place to start a management reinvention. The model is simply a set of aligned activities – you still need something to align these activities upon. As I’ve argued already, this thing should be the outcomes you’re trying to create, so we’re now back at the organisation value chain.
The four value chains I’ve identified really are four fundamental value chains which are part of most private sector businesses (public and voluntary organisations will have a slightly different business strategy map and therefore a different combination and / or sequence of value chains.)
I sometimes take the organisation value chain a stage further and represent the whole business strategy map focusing on the organisation value chain rather than the other three chains. This is shown here.
I’ve dived down deeper into the learning and growth perspective which now becomes the organisation value chain
I’ve grouped the rest of the business strategy map together into one perspective which I call business impacts. This doesn’t mean that operations, customers and financial results are unimportant but is simply a consequence of the fact that we don’t impact them directly and therefore don’t need to focus on them quite so much. And I call the perspective business impacts rather than business results as our results are really the final step in the organisation value chain ie the human capital and other outcomes. The business impacts are then the things the business can do as a result of our results - they’re not the direct results of the work we do on the organisation value chain.
Presenting the business / organisation strategy map in this way has a number of benefits:
The business strategy map is a really useful model for a business because it provide a business with a balanced range of perspective (i.e a business should have approximately equal numbers of objectives for its financial, customer, processes and learning & growth perspectives) and therefore the ability to track the flow of objectives through these perspectives i.e the ability to identify lead and lag indicators of particular strategies.
Using the business strategy map is also useful for HR as it helps integrate HR into the rest of the business i.e. every time the business executive meet to talk about the business using the strategy map, they’ll be talking about learning and growth, i.e HR, as well.
However the business strategy map is otherwise a less useful model for HR, since all of our objectives are in learning & growth we don’t have the benefits of balance or of flow. Representing the business strategy map as the organisation strategy map gives HR these benefits, i.e HR can now track the flow between the objectives within these four perspectives, and set lead indicators for inputs and activities and lag indicators for outcomes and business impacts.
Ie HR can now track the flow between the objectives within these four perspectives, and set lead indicators for inputs and activities and lag indicators for outcomes and business impacts.