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Tag: Peter Drucker

Does a knowledge worker need a knowledge manager?

Here’s a thought: in a matter of years, the worker and the manager positions will be reversed in the organisational hierarchy.

There are three parts to the economics of pay and hierarchy:

1. Control of assets.

Workers have little control and authority over assets and are paid to ‘just work’.  At the low end, managers are given some control over the assets used in daily operations including stock and rosters.  Each promotion and pay rise recognises the expanding scope of assets under the manager’s control.  At the extreme high level is the CEO salary such as Charif Souki, CEO of Cheniere Energy who, according to Bloomberg, tops the list in 2014 with his $142 million salary package.

2. Contribution to results

The greater a person contributes to results, the higher the reward, such as the sales manager whose efforts directly impact the bottom line.  On the other hand, the human resources manager at the same level manages workforce costs and is generally less well rewarded.

3. Demand

As the law of supply and demand dictates, the more available or replaceable the skill or ability, the lower the pay.

In the industrial economy the hierarchical model was straightforward.  Because managers controlled more assets including the people who provided the labour, they command a higher position in the hierarchy and were paid more commensurate with that level of seniority.

Ricky Gervais in The Office

Everyone’s favourite nightmare manager, David Brent, played by Ricky Gervais

The dominance of the knowledge worker since the 1990s has been effecting a significant change for enterprises which could drastically alter how the manager position fits in the organisation.

In 1966, management guru, Peter Drucker, had already envisaged the knowledge worker disrupting the standard order of progression from worker to manager.  He wrote, “Every knowledge worker in the modern organization is an “executive” if, by virtue of his position or knowledge, he is responsible for a contribution that materially affects the capacity of the organization to perform and to obtain results.” (The Effective Executive 1966).

Wealth creation in the industrial economy came from the control of physical assets.  Industries such as mining, manufacturing and agriculture created the list of the wealthiest countries and companies.  As the knowledge economy’s growth accelerated in the 1990s, spurred on with the widespread adoption of the internet and technology, the value of enterprises has been changing in a way that most organisations are yet to fully realise.

Assets

Physical assets are owned by the enterprise, even physical labour which a company has bought the right to control through the employment contract.  The above chart shows how significantly this has changed.  While companies continue to promote and remunerate managers for their ability to control the enterprise’s assets, the majority of the company’s value is no longer in those assets.

Intangible assets are a product of knowledge work.  They include such things as brands, organisational culture, core competences, customer relationships, designs and inventions.  The fundamental difference with knowledge work is the assets do not belong to the enterprise therefore managers cannot control the greatest contribution to the company’s value.

Companies no longer need managers to sit over workers because the company does not own the knowledge.  Whether the ‘knowledge’ is a contact in the government, the knack for spotting the next big fashion trend, the ability to close a sale, or a manner that brings a team together, it will always belong to the person that provides it.  The company that maximises the value of its intangible assets will be the one that has an infrastructure developed to lease the knowledge it needs from the owners, such as through freelancing assignments, strategic alliances or employment systems that tap into the knowledge it needs when it needs it.

Taking Apple for example, a company valued at $400 billion of which intangible assets account for 96 per cent, and one of the most successful companies in history.  Innovation, design and a commitment to placing technology into the hands of people, is how the company achieved such an outstanding result.  It was not achieved through managers installed to keep the knowledge coming, checking whether the ideas were meeting KPI targets so that another market-changing concept like an iPad would emerge by the deadline set by the business plan.

So whatever managers do now, it must be something more than overseeing workers like pickers and packers, who process the company’s physical assets (and even these are being increasingly automated).  It must be something that enhances the organisation as far richer places than a collection of workers mechanically completing tasks.  A bright future would be one where the richness of people collaborating, creating and doing is allowed to happen without the oppression of pre-determined positions monitored by people who are there to manage actuality rather than possibility.  Otherwise in this world the prospect of being given a manager job might be one seen as a demotion.

Making organisations work

The decision I made to set up a company ten years ago did not entail much deliberation.  It was prompted by little more than not being able to think of a job I wanted to pursue in the work I thought I was good at.  The only thing that I spent time thinking about was the business name.  ‘Meta management’ is a management term that means the management of management to achieve overarching goals.  It is the opposite of ‘suboptimisation’, the process of achieving the goals of a division or component.  Even the most junior employee of any large organisation can tell you that optimised parts do not make up an optimised whole.  When each department has to achieve its own goals, it inevitably comes at a cost to the whole.

My experience was that most performance problems could be resolved through a systems thinking (very simply defined as “two or more parts that work together to accomplish a shared aim”) approach,  ‘Meta Management’ seemed to be the perfect name to describe my new venture.  All I needed to do was to find companies that wanted their problems solved from an organisational rather than divisional, individual or symptomatic perspective.

However, over the years I was increasingly disturbed by our (perhaps subconscious) response to what needs to be acknowledged as our lack of ability.  For all the brilliance of people like Peter Drucker, Henry Mintzberg, Warren Bennis, Rosabeth Moss Kanter and Michael Porter, and the simplicity with which their and others’ matrices, frameworks and models help us to lay out and figure out complex organisational problems, we at the ‘doing’ level, are lost  Knowing what we want to achieve is not translating into knowing how.

Not knowing how is a large part of the reason we persist in using programs and practices (such as these) that do not deliver as they claim, but look as though we are making a difference to the business bottom line.  Our choice has been to limit our focus so that we work in a narrowly defined version of the organisation rather than one that accurately encompasses the business and the people who work in it.  Although the central element of all businesses is financial we lack the understanding and the language of business and finance to quantify our contribution beyond the most basic.  As the Society for Human Resources noted in The Future of the HR Profession, “the only real metric HR has established to measure its work is cost-cutting.”  Unable to quantify the outcomes of our work, instead we quantify the people who do the work.  The shrinking of the definition of the organisation to one that does not include the business and people in holistic ways is evident by the fact that most positions that hold the word ‘organisational’ in their title do not work on the organisation at all.  At best they work on programs that are implemented across the organisation.

On paper, we are upping the company’s collective talent, we are improving productivity and we are increasing worker retention.  Except we aren’t really.  What we are really doing is finding more sophisticated ways to reduce down or remove the people who bring the results down, allowing the numbers to look better.  We turn people into job descriptions because we can produce metrics on skills and outputs.  We turn people into competencies because we can link them to key performance indicators.

If we are prepared to be measured at the humanity level – and considering we make our living from the efforts of people – we should be, it is clear that in failing add real, measurable and sustainable value to business we also fail in our other priority: people.  The figures on disengagement – where in workplaces across the world the engaged are outnumbered by the disengaged at a ratio of 2 to 1 – tell us this is true.  The fact that workers who spend the bulk of their working years with one employer are now disadvantaged as job seekers tells us this is true.  The fact that those who are most likely to be unable to find meaningful work that pays enough for a decent living are predictable, tells us this is true.  We are producing organisational results by shifting the problem to individuals and communities.

The things we cannot easily measure, such as the effect of work on self-esteem, the extent to which we feel valued, our sense of identity and sense of being in control, do not have to be factored in.  This would make it more difficult to produce positive ‘human capital’ results.  The best of our profession fight for organisational practices that support these anyway, but the majority leave the ‘soft’ side of management up to the line managers.  We add these as measures to their jobs, not ours.  The organisational specialists are not meta-managers but have become as suboptimised as any other division in the business.

None of this means that companies should not be able to make decisions that maximise their bottom line.  The question is whether we are actually achieving the maximum bottom line results possible.  Perhaps it is the best we can do under our present processes.  It is not unlike the argument for recycling.  The cost of recycling, including operating costs, chemical waste and pollutants has long been argued to outweigh the benefits.  An estimate in California put the cost difference at $28 per tonne to landfill waste compared to $147 per tonne to recycle.  However this estimate was in 1995.  New processes enabled by greater automation have since brought down the costs to process recyclable waste.  The waste is not ‘recycled’, rather it is ‘upcycled’.  The change in consumer attitudes makes turning waste into new products commercially viable.

We now need to take the same approach with the management of organisations.  Like recycling, we too need a new approach so that the cost of sustainable business and people practices are far outweighed by the benefits.  Having one set of measures for sustainable business and people performance would be a good place to start.  The people over at The Relationship Economy think that would look like this:

 

The answer is as simple as building a new model.  It does not make sense that the organisation can effectively serve the business without properly understanding business, so a new model needs to be one that incorporates the wisdom of those like Drucker who have envisaged how great the organisation can be, with the practical demands of the business.

 

The unravelling

This article was first written at the height of the GFC – we have not advanced much since then.

This blog is about the state of work – often a sorry state of work. When times are tough, as they presently are, we are more protective of work: as employees of the jobs we have; as employers, the jobs we make available. Perhaps in adverse times we become more aligned, united in our efforts. Otherwise employment is an undeniably a relationship of conflict: about money, about rights, about being a worker with human needs and issues. And if employment is relationships between the interests of different parties, then the employment system is aimed at mediating between power and rights between workers and employers, thus, we have not resolved the employment conflict, we have made it mainstream. Many will disagree. We have heard all the objections before. We know many protesters will be from the human resources fraternity. After all, their programs and processes are designed to create harmonious, productive workplaces: finding “right” people, ensuring feedback is provided, careers are available, development is promised, people are “retained”. We don’t mean to sound cynical but the happily aligned workforces are those often relentlessly policied, programmed and filtered to the point that they are sanitised of individuality.

I am not anti-employer, nor anti-human resources (HR).  I also see employees who cause all manner of headaches to their employers and colleagues: bringing to work a sense of entitlement, an expectation that they are there as a right, contributing angst, uncertainty, and complying with workplace expectations if not with grudging, feet-dragging unwillingness, then selectively. What I am saying is that the current method of employment is inadequate and unsustainable. Unsustainable because the willingness of workers to be subjected to autonomic organisations’ decision-making agenda and abilities, and the potential for uncertainty, lack of fulfilment and demands that cross reasonable work/life boundaries, is waning. Inadequate because the resource/productivity mentality of the industrial age does not cater for the many ways that people can work. We are used to putting values on, say, a salesperson with a 300-customer database, but what about a person with no sales experience but with a following of 3000 (interested, potential customers?) on Twitter?

The cracks in employment have been showing for a very long time. Unemployment and underemployment, skills and labour shortages are problems in the labour force that have yet to be resolved. In the workplace rates of burnout and stress are on the rise from the ever-growing number of causes: overwork and under staffing, or being over-managed by the under-skilled, or the lack of variety and stimulation, or the need for on-demand availability from access to mobile phone and technology, or the erosion of confidence and esteem from people or systems that intimidate, bully, harass, or systems that cannot cope with the demands on them. The thing is people do want to work as much as they have to work. They just want to work in a way that suits them as humans, not in the way that organisations subject them to work. The irony is that for all that organisations and people are basically similar in their desire to achieve, to succeed, to engage and to meet challenges, the current system of employment is more likely to accede differences than build on similarities. People get it that organisations need to be, to one extent or another, commercial or entrepreneurial. What they want is an open dialogue about the environment in which this occurs and they contribute. When HR becomes involved, the opportunity for this dialogue diminishes. HR, an advocate for management, weights the flow of dialogue top-down rather than two-way. Further, commerce and business are not the common language of HR, so its ability to facilitate shared concern for the success of the enterprise is often limited to generalities without the specifics of data and metrics, strategy and analysis. This is less a reflection on the intelligent, professional, dedicated people who work in HR, it is just the nature of the profession and the way HR is educated.

Some of the problems with employment can be explained by its history. The late 1800s to early 1900s was the golden age of industry. Wealth shifted from the land-backed class to those who controlled resources – the mines, forests, factories, and populations shifted to towns to take up the demand for mass employment. Employment law is at its roots part of family law originating in the old English feudal relationships of master-servant, where the master had the right to control the servant for the benefit of the master.

As great wealth became available following the advent of machinery, great conflict ensued with strikes each year involving millions of workers throughout the industrialised nations around the world often turning violent even deadly. Workers fought against work conditions which were often inhumane, the use of child labour and working six and seven days a week and days up to 16 hours long. Demands for an eight-hour day, increased daily wages, sanitary working conditions and safer conditions usually resulted in compromise until the world-wide spread of the “human movement”.

Thus the interest of this blog is to share what we do, the lessons we learn and the successes we achieve in our work. We begin by rejecting “human resources” as having found the solution for today’s workforce. Its practices may have once been appropriate, when people were a cog in the production wheel; today it is an oxymoron. “Resources” are assets by definition, “the property of a person or corporation, a thing of benefit to its possessor”. Notwithstanding that an organisation might appease some by calling people their “greatest” asset, employment is a process that causes people to be treated like a resource for the corporation’s purposes, capable of being bought, sold, hired, used and disposed of in line with its plans to achieve wealth or revenue. The human is not the resource, it is their skills, ideas, networks, time, experience and so on. No wonder people so often feel used – they have been. As the late, great management thinker, Peter Drucker, wrote in the Harvard Business Review February 2002, “They’re not employees, they’re people”.

This all makes sense, again looking at history, because the success of the early firm depended on productivity, that is the most efficient and effective way to produce as much as possible as cheaply as possible. From F.W. Taylor (scientific management to increase industrial efficiency c. 1900s) to W. Edwards Deming (post-World War II inventor of Total Quality Management) organisations have sought ways to increase productivity. As competition intensified and demand plateaued, corporations have sought to differentiate themselves, through service, unique features, niche offerings, or other value-add. “Looking after employees” became a priority. Not only was the employee trained in the organisation’s way of doing things, they were often part of the customer service. The loss of their knowledge and relationships was a disadvantage to the firm, and worryingly could be used by a competitor. More specialised skills and knowledge vested into positions also meant a greater cost of replacement. Unfortunately for productivity, employees are unwilling to commit to firms who are not prepared to give loyalty, but think it can be bought (“retaining employees”, they call it). So organisations continue to base employment on productivity-based models and buy loyalty.

To spell this out further, a productivity-based model is one that develops specifications for production output at a certain cost. In human resource terms we might call them job descriptions and KPIs (key performance indicators). We refer to the production-based organisation as “linear”, that is, sequential (i.e. process x follows process y;) and standard HR processes are designed in the same way (ergo I feedback, you perform). For this “greatest asset” we offer incentives and rewards: promotions, bonuses, feedback, training. However, this is becoming unstuck if not because people – enter Generation Y who have no memory of being grateful for having a job – are demanding more “human” treatment but certainly because knowledge is the new “resource”, and knowledge cannot be conveniently measured.

Where the industrial revolution rewarded those who controlled the resources, controlling people as a resource only benefits the production part of an organisation’s offering. It might get the coffee made, but what about the smile, remembering the order of a regular, the conversation with customers? When we count wage costs, we know what we pay for labour but do not measure what the “people factor” costs. This part of “labour cost” – and it does cost – is where traditional employment fails most. The cost is frequently not monetary but we are so tuned in to the concept of “resources” we overlook the non-production costs. So what does this cost? Well the key “cost” is that employer must drop control. By “control” we do not mean having proper, diligent management, we mean the type of control, that as just one example, favours the few (those who are not a non-English-as-a-first-language speaker, a casual, a temp, too old, etc, etc.) in the name of “performance”.

“Dropping control” is a worrying concept for many employers. They constantly asks, “How do we stop them leaving? How do we protect our information? How do people know what to do without job descriptions?” And much more. But these controls are only illusions. People leave if they want, they take information with them, that they cannot “unknow” something when they leave, and who takes instructions from their job description anyway? An organisational infrastructure is the new people resource because it allows people to supply their efforts in the same way as, say, electricity powers a building. An organisation without a well-developed organisational infrastructure (OI) is inefficient because it allows the “leakage” of non-”productivity” efforts; we see trust, motivation, good will and other people qualities as no less valuable to a firm than a person’s labour for all their intangibility.

Employees should not be the source of instability and stress that it is for so many. It is enterprise that should be the common language of employees and workers with common goals and values and that in doing so both employers and workers alike take responsibility for and benefit from their ability and willingness to contribute.

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