Why have technological advancements not been matched with exponential advancements in productivity? Over the last 60 years, global business complexity has increased six times over, and internal organizational complicatedness by over 35 times in response to this external complexity.
In this episode, we hear from the director of BCG’s Institute for Organization, Yves Morieux, on the organisational changes required to unlock human potential. Discussing his theory of ‘smart simplicity’, Yves explores the needs for balance between autonomy and cooperation as well as the role managers can play in facilitating this.
Paul Sephton: Yves, fantastic to have you with us today on the Soundbar. As the director of Boston Consulting Group’s Institute for Organization, you have encountered and consulted for hundreds of companies and led a lot of change management helping organizations with their structures and behavioral growth. With this, you’ve seen the incredible complexity we face in business today and I’d love to see what is perhaps most salient for you in terms of a cross section of all the companies that you’ve consulted for and where you see these major productivity you trip ups happening in business.
Yves Morieux: Well, Paul, what I found the most striking is that there are many, many technical innovations in every business. In steel making, even in healthcare, suppose you need a knee replacement, 10 years ago, you would have to stay two weeks at the hospital with nurses, doctors, housekeeping, catering, cleaners. And today, you will be okay in two days. You will be off in two days. So this is a major technical innovation and you have the same in IT with the cloud, in telecommunications, and yet the productivity itself of companies does not reflect these huge technical innovations.
So that’s something striking. And the other striking feature I have observed is if you compare the amount of efforts that leaders put in improving people’s morale, look at an office today, you would see windows, light, nice colors, a place where they can have coffee, water, gym, celebrations, and this is not reflected in the way people feel at work. You have disengagement, you have frustration, you have suffering, the rate of happiness is decreasing. So this is another striking observation.
In the same way as productivity does not reflect all the innovations, the way people feel at work does not reflect all the efforts that leaders pay to improve engagement and feelings in the workplace
In the same way as productivity does not reflect all the innovations, the way people feel at work does not reflect all the efforts that leaders pay to improve engagement and feelings in the workplace. So these are the two most striking observations.
Paul Sephton: And when you really dig into the workforces, we have these two issues like you’ve mentioned between productivity and engagement facing major challenges at the moment. Is this a chicken and egg type of situation where the low engagement is causing low productivity or vice versa, or what’s the relationship that you see between engagement and productivity?
Yves Morieux: Of course there is a link. When people are less engaged, they tend to be less productive. And when people are less productive, we put more pressure and this tends to exacerbate frustrations. But I did some analysis and we found that beyond this interaction between the two issues, there is a third factor which causes these two issues. There is an underlying, an underpinning third factor that skewers the productivity problem and the engagement problem.
There is an underlying, an underpinning third factor that skewers the productivity problem and the engagement problem.
And this third factor has to do with the way companies have organized work in terms of structure, have performed work in terms of tasks and have led, managed work in terms of leadership and hierarchy. And this is something that has not been noticed. We have a lot of theories in terms of macro economic drivers of sluggish productivity, we have a lot of theories in terms of millennials. The new generation is less engaged, is more transactional, and these practical, concrete, root because the way work is managed, organized and performed seems to be ignored, yet each is very practical, very concrete, and based on our analysis, has a direct impact on productivity at work and satisfaction at work.
Paul Sephton: The tricky thing with business these days is that it’s so much more complex than it used to be thanks to tech developments and globalization and the resulting way in which we’re able to operate businesses. So it brings about quite a few conflicts. We’ve got things like this desire to tailor for local markets whilst standardizing global practice. We’ve got this fight between innovation and efficiency, and battles like wanting to lower prices while increasing quality. So is there some kind of way which organizations can still manage and structure their businesses in a way which makes sense globally while stripping back some of the potential extra layers of complications which we’ve introduced?
Yves Morieux: You’re totally right. The world has become much more complex. The business world has become much more complex over the last 55, 60 years. We have measured these growth in complexity. Basically, the challenges that companies are facing on average based on our measurement are six times more complex than six decades ago. We have more performance requirements to satisfy, we have more key success factors to satisfy, we have more stakeholders, unions, workers’ council, shareholders, customers, but also governments, regulatory bodies.
Basically, the challenges that companies are facing on average based on our measurement are six times more complex than six decades ago.
And each of these stakeholders have their own requirements and it is impossible to satisfy one at the expense of the other, but they are sometimes difficult to reconcile. Speed and reliability is difficult to reconcile because reliability means control, check, verification. This takes time, but it cannot be at the expense of speed to market. So this is complexity. The real issue is not complexity, if you think about it, because we have no choice. We have to face these complexity. You cannot tell your customers, “Do you want the right answer or the fast answer?”
No, I want the right answer fast to attract customers, to keep customers, to create value for customers and every stakeholder, we have to face these complexity. So this is not the real problem. The real problem is the way organizations respond to new complexity. And what do they do? Organizations, they use the same solutions that used to work 50 years ago in a simple world. So they use structures, they use processes, they use systems, they use matrix, but because they have more requirements to face, they pile up these solutions so you end up with many reporting lines, with many metrics, with many committees and this is what is [killing] productivity and engagement, this complicatedness.
Organizations, they use the same solutions that used to work 50 years ago in a simple world.
So me, I make a difference between complexity, that’s the external environment. We have no choice and internal complicatedness. This complicatedness, we have a choice. And by the way, this is why every company today is going through a transformation. You can call it [agile], lean, I call it Smart Simplicity, you can call it holacracy, you can call it till, you can call it sociocracy. There are many words. Why? Because organizations need to go through a revolution, a transformation. We cannot continue in the same way.
We have measured complicatedness. Complicatedness has multiplied by 35 over the last 60 years, and because complexity is not likely to stop growing, imagine what will happen in terms of complicatedness and therefore productivity, if we continue in the same dead end. It is a dead end. This is why we need a transformation of the way companies work and operate.
Paul Sephton: One of the metrics in your research which stuck out the most for me was the following. It was that we’ve seen less than 1% per year increase in productivity since 1995, but this was around the time when tech was ballooning, internet was becoming accessible and at the same time, you saw productivity increases of over 3% per year in previous decades. What you then realized was that if you have a 3% jump every single year, the standard of living increases double for each generation. If you have a 1% jump, that same standard of increased living takes up to three generations before it’s felt. So when it comes to this sort of stagnation in productivity and the rise of technology, is that causation or correlation which we’re seeing?
Yves Morieux: Very interesting. Yes, because it is true that if you look at the productivity trend on the one hand and technology on the other hand, basically productivity, labor productivity in the developed economies, growth rates has been divided by 10 over the last four decades. And at the same time, we were accumulating technological innovations. The internet, as I said, ERP system, databases, servers and today, machine learning, deep learning, the cloud and so on. So it seems that the more we invest in information and communication technologies, the more we degrade productivity.
And therefore, we should stop investing in information, communication, telecommunication technologies. Well, this is totally wrong. That will be a big mistake because what is happening? We have had a lot of innovations in IT, in technology. The IT people, they have done their homework, but there is another dimension which has been ignored, organizational innovation. We need organizational innovations to take advantage of the technical innovations. One without the other of course, is a catastrophe and this is what has happened.
It is just an apparent paradox. In reality, there is no paradox. The real explanation is that there is no organizational innovation.
This is why today, leaders, managers need to do their homework, we need to innovate in the way companies work. And when you have organizational innovations and technical innovations, then it is possible take advantage, and to leverage and exploit the potential productivity in begin in innovations, in technical innovations. So this is what is missing at the moment and that explains this paradoxical interaction between IT investment and productivity. It is just an apparent paradox. In reality, there is no paradox. The real explanation is that there is no organizational innovation.
Paul Sephton: Digital transformation is a specialty of yours, Yves, and I want to talk a little bit around the changes you’re seeing in organizations as they over-complicate their structures perhaps, and how that relates to digital and digital transformation. Because I think very often when a company wants to move forward with a different kind of technology, it will still have some kind of legacy system or mindset or thinking in place and it’s quite hard to shift that out overnight. And so what you see is a new system creeping in and that can often kind of have major effects for employees and for an organization. So I’m keen to see from your perspective if there’s a better way we should be implementing and deploying digital transformation, which is more in line with what a modern organization and manager can easily adopt and see the results of without too many complications.
Yves Morieux: All too often, organizations, they pay lip service to organizational transformation. It boils down to what is called change management, and change management all too often boils down to adding some oil in the squeaky wheels, removing some friction points by facilitating workshops and having some kind of new slogans. This is not what we mean by organizational innovation. An organizational innovation is something radical and companies, they don’t pay enough attention to these organizational revolution.
And of course, when it doesn’t work, we blame resistance to change. And we say people resist change, which is totally wrong. To blame the people is a bit easy. Instead of blaming the way we manage the people, we blame the people. And second, it is wrong because people don’t resist change. They change cars, they change jobs, they change husband or wife. People don’t resist change on the most important things as long as this change is in their interest. What they resist is something that they don’t want. So this is why organizational transformation has to be deep.
People don’t resist change on the most important things as long as this change is in their interest.
We need to really understand how the technology can be put in the service of people’s job. The essence of digital transformation is to better enable people’s intelligence, to enable people to be themselves in their judgments, in their initiatives as opposed to be in the service of technology. So all too often, digital transformation is in the service of digital, not in the service of the people, their jobs, their aspirations, the problems they are facing, the constraints they are dealing with, the resources they can mobilize.
We don’t have a people-centric approach to digital transformation. We have a technical-centric approach all too often.
Paul Sephton: As a result, the order of these inputs and these observations you’ve had, you developed a six step Smart Simplicity approach, Yves, and you divided that into two different categories. But I’m going to quickly run through all six of them and then I would love it if you could explain a little bit more about it. So you cover points like understanding what others do and what their real work is, reinforcing integrators, increasing the total quantity of power amongst people in teams, extending some kind of feedback loop to show the consequences of people’s actions, increasing reciprocity by removing buffers and rewarding those who cooperate.
Can you tell me a little bit more about how you developed the Smart Simplicity approach and what exactly it entails?
Yves Morieux: Well, what we call Smart Simplicity is a way to respond to complexity, to the business complexity that all companies are facing without becoming complicated, and it is not easy. That’s why it needs to be smart, that’s why I didn’t call it simplicity. Instead, I called it Smart Simplicity because I wanted to make a clear difference between simplicity and simplicism and simplifying without taking into account the new complexity. Simplifying by ignoring the new complexity verges simplicism. And this is very dangerous.
The whole idea is that when we face more complex problems, we need to better use people’s intelligence. So Smart Simplicity is a way to better use people’s initiatives, judgment, logic, problem solving capabilities, adaptiveness, energy, resilience, common sense. It is a way to better use intelligence because we are not six times more intelligent than 60 years ago. The problems are six times more complex, but we are not six times more intelligent. So what is the solution? The solution is to find ways to beat your userware intelligence.
It is a way to better use intelligence because we are not six times more intelligent than 60 years ago. The problems are six times more complex, but we are not six times more intelligent.
A set of solutions to enhance autonomy because when there is no autonomy, people cannot use their judgment. But this autonomy must not be at the expense of cooperation. So Smart Simplicity is six principles. Three principles are about enhancing autonomy and three principles are about making sure that this autonomy is put in the service of cooperation of the common good rather than optimizing one’s silo at the expense of the others. That’s the whole idea. To face complexity, we need autonomy and cooperation.
Paul Sephton: So let’s focus on the first half of this list which we’ve gone through, the enabling side of things. And we just mentioned being able to understand what other people do and what their real work is. What are some of the things in this toolbox which we can do and why are they so important?
Yves Morieux: Yes, you’re totally right, Paul. In this rule, understand what people do, what they really do and why they do what they do. Why do they collaborate or they don’t collaborate when they should? Why they won’t standardize enough while they should? Why do they do what they do is very important. And I can tell you that in many, many, many cases, organizations don’t know where their people really do. What organizations know is the structure, the process description, the job definition but this is what people are supposed to do, is not what people really do.
What do they do on a day to day basis? What are the real problems they are dealing with? So understanding what people really do is very important and this is why managers need to go back to work and we need to bring managers back to work to know what their people are doing, instead of being in meetings or writing reports. All these are proxies; reporting, metrics, meetings are dealing with proxies, not the real reality. And in a simple world, proxies are fine because there is a very small difference between the proxies and the real reality.
Understanding what people really do is very important and this is why managers need to go back to work and we need to bring managers back to work to know what their people are doing, instead of being in meetings or writing reports
But in a complex world when you have many, many, many requirements, using proxies instead of understanding the real work becomes an explosive combination of mistakes.
Paul Sephton: Yves, you mentioned a lot of the things which suck time from a manager’s schedule. And one of these is something which I think no one is a stranger to these days and that is meetings. And you say that a lot of people spend way more time than they have to in meetings. This is something which is slightly contrasted because what you often have these days is far more collaborative working environments where collaboration and teamwork is seen as sort of the cooking pot for innovation at a company. How do you think people can effectively manage their time or their team’s time in order to focus on the right amount of teamwork and collaboration while also focusing on getting their individual tasks done?
Yves Morieux: That’s a very important point, Paul. I think we must not confuse cooperation with being together. We don’t need to be together to cooperate. Cooperation means that I am sitting in my office, I have a problem to solve. Cooperation means that when I solve this problem, I take into account, not only my own constraints but also the needs of others, the situation of others that will be affected by this solution. And also I take into account as much as possible the end results, the impact on the overall outcomes from a company point of view, or a department point of view, or division point of view.
Cooperation means that when I solve this problem, I take into account, not only my own constraints but also the needs of others, the situation of others that will be affected by this solution
So this is cooperation. Now, to do this, we don’t need to be 10 in the same room. As long as I know their situations, I have information about them, I have data about them, there is transparency, sometimes we need to be together, but we can be together without real cooperation and we can be alone with real cooperation, we must not confuse. So why do we need to be together? We need to be together when we are solving a problem on which I don’t have enough information about the impact on others, about the various constraints, so then let’s be together.
And when we are together, we will have more ideas, we will have more in real time information about the impact on others. But it is just a specific set of constraints that makes being together useful. It is not an attribute of cooperation to be together. Cooperation and being in the same room are two different things.
Paul Sephton: So on the one hand, cooperation is something which will reduce organizational drag and a lack of cooperation is something which increases organizational drag. And you give the example of a baton in a relay race. The thing is these days, being cooperative runs counter intuitive to all the measures we’re given today in terms of our KPIs. With cooperation, you’re saying that the whole is worth more than the some of its parts, and it compounds human effort. The thing is when you cooperate, it’s not a super effort, but it distributes your effort. And in doing so, you sacrifice protection granted by objectivity measurable individual performance.
Yves Morieux: So if I am being measured on an individual task and I know that that’s my KPI, when I cooperate with someone else, I’m potentially sacrificing my own individual accountability by working on someone else’s task instead of my own. How do you think we can introduce a more effective type of KPI which has the inclusion of that cooperation and does not make me just want to focus on myself and my measureables in order to perform well in my own job?
I don’t want to underestimate the importance of being in the same room at the same table. Again, this is sometimes very important in many organizations by putting people in the same room instead of being in different offices for the duration of their project. They will be at the same table in the same room, has a significant impact. If your decisions make your colleague’s life more difficult, these guys are one meter away and you will see their pain. And this create a feedback loop. It is not sufficient, but it is sometimes necessary.
You see directly, face to face the impact you have on others. So it can be an enabler of a corporation. Now, in terms of metrics or KPIs, we need to recognize people’s effort. We need to reward people’s effort, taking into account their corporation, the way they cooperate with each other. But this is difficult because cooperation is very, very difficult to measure. It’s almost impossible to measure cooperation. You can only observe qualitatively, judgmentally, subjectively. So that’s the trick. We need to reward people on the basis of some results that can be measured like sales, speak to market, productivity of their teams.
If we are in procurement, okay, let’s see the amount of savings divided by the amount of people. That will give me a measure of their productivity. But these productivity can be at the expense of the users. People working in the factories that we have to use the raw materials or the equipment purchased by the procurement guys. And this, we need to take into account but this cannot be measured. So what do we need? We need managers to be present, to know what is really happening and to provide some qualitative judgmental evaluation of the quality of cooperation.
So we need to combine the what when we evaluate people, which can be measured in a relay race. What was your speed? This can be measured, and the how; how did you pass the baton? Did you throw it or did you pass it at the right time, in the right hand, at the right speed, at the right height? And this can only be qualitatively observed. So the how cooperation requires qualitative, judgemental and therefore subjective evaluation. And we all hate to be subjectively evaluated. If we don’t trust our management, we will not like to be qualitatively evaluated. So trust becomes very important in managers.
Paul Sephton: Yves, I love the description which you give around this relay race because like you say, if we measure someone’s pure speed, it often comes just from their legs. But when it comes to the relay race, there are all these other coordinated subtleties between runners which make them work so well together. So with that in mind, how do you advise managers these days to help their teams and enable them more in terms of being able to cooperate with one another and with other teams?
Yves Morieux: I think we need a new kind of dialogue between teams and managers, where managers will ask their teams what are the most difficult issues they are facing, where managers will try to understand the personal risk that the teams have to take because to face complexity, we need more judgment. When I am just following automatically the rule like a robot, I cannot make a mistake. But when I am interpreting the rule using my judgment to face something very complex, I may be wrong. So therefore I take a personal risk.
So this is an important conversation so that managers really understand the real work people are doing, the personal risk they are taking. And something even more important, when people take personal risks, we don’t want it to become a corporate risk. If you have cooperation, if people help compensate anticipate, provide a safety net for individual mistakes, then you can have at the same time more creativity, more innovation at the individual level, more judgment, more personal risk taking and a high level of reliability for the company thanks to cooperation.
So this is an important conversation so that managers really understand the real work people are doing, the personal risk they are taking.
But the only way for managers to realize this needs to spend more time observing their teams, working with their teams and ensuring you get the collaboration you need from others so that these individual risk is not translated in the corporate risk.
Paul Sephton: So there are all these things which managers can use in their toolkits in terms of being able to better enable their teams, but when it comes to actual deployment of these in organizations and particularly sustaining them once you have deployed them, what can a manager do to make sure that their teams are getting that kind of trust and getting that kind of ability to fail in the right way so that they can get the most out of their teams and achieve a new level of performance?
Yves Morieux: The fast answer to your question is that me as a leader, whenever I have to make a decision in terms of changing the processes, whatever. Whenever I have to make a decision, I need to answer a few questions. Who are the people affected by these decision? Who are the people whose behavior is important for my decision to be successful? Second, what do I want these people to do so that the decision is successful. And question three, how can I make sure that these new behaviors happen?
When I have answered these three questions, then I have taken a decision that is, I would say, people-centric. You can call it design thinking, I am using design thinking.
When I have answered these three questions, then I have taken a decision that is, I would say, people-centric. You can call it design thinking, I am using design thinking.
Paul Sephton: We’ve hit our stop for today, Yves. It’s been fantastic having you with us on the Soundbar, learning about all of the factors and ingredients which have led to such a complicated business world, and then the formulas which you’ve developed to be able to tackle these and give to managers to empower them to develop more high performing teams.
Yves Morieux: Thank you Paul, take care.