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November 2009

Human Capacity vs. Human Contribution

This blog on Organisational Entropy came to my attention this morning and I thought it made very interesting reading and was worth sharing.

I have to confess that I felt obliged to look up the word "entropy" and was glad I did, because it actually prompted me to challenge something that I was inclined initially to go along with. Now I don't want to simply repeat my original comment here, for, as you may see from that, I challenge the concept of "unavailable energy" that forms the gist of the argument.

I do, however, feel the point is worth expanding, as well as, (hopefully) conveying to a wider audience. You see the piece opens with the words, "Organized systems want to operate with the lowest level of energy expenditure possible; it seems to be the natural state not only of living organisms but of our human organizational creations as well." The first part of the sentence is presented as fact and I certainly do not have the scientific knowledge to suggest that it is anything but. However, I would challenge the second part, not because it may not be true, but because I believe it is not a state of affairs that should be blindly accepted - at least not in so far as it applies to human energy.

You see, it is a tacit admission - and ACCEPTANCE - of the fact that people will do the bare minimum of what they are employed to do. This is not acceptable for two very good reasons. Both are time related, but they are in fact very different.

Firstly, an employment contract is a legally binding agreement that implicitly requires the employee to do their best. Unlike other costs which can vary according to situation, business need etc., the employment contract is time based and generally commits the employee to work a defined amount of time in any given period for a defined wage. This itself may, arguably, be an antiquated historic precedent that is no longer relevant in the modern workplace, but nevertheless the concept underpins work practice, and, theoretically at least, it demands consistent effort on the part of the employee. The employer thus will not knowingly or willingly enter into a deal that condones operating at "the lowest level of energy expenditure possible," but will expect, and be quite entitled to expect the highest level of human energy output possible. Indeed they may regard anything less as a breach of contract. Regardless of the practicalities of measuring the human energy expended, the very concept runs counter to the assumption.

Secondly, the amount of time that an employee spends at work is a contribution of his/her human life to his/her employer. The physical impossibility of being in two places at once, even if s/he is the best multi-tasker under the sun, makes this an irrefutable fact. Consequently, both employer and employee should be endeavouring to optimise the use of this time: the employee because anything less is a waste of their potential and their allotted life, and the employer because there is a moral requirement to respect that fact. Consequently, it should be in the interests of both parties NOT to minimise the human energy expended.  

The energy is available, and therefore its non-usage, constitutes waste not entropy, and, as all my regular readers know, this 'human economic waste' is what I am fighting!

Lean ... and Green!

One aspect of Lean Management has had surprisingly little publicity and I cannot help wondering, "Why not?" Is it possible that the potential has not been recognised? 

Of course I am talking about its green factor - its potential to assist the green movement.

Think about it for a moment. Lean Management (or "Lean" as it now often more often called) is a wider application of Lean Manufacturing or Lean Production: a production practice that considers it wasteful to use resources for any purpose other than the creation of value for the end customer, and treats anything that does not comply as such. In this context, "value" means any action or process that a customer would pay for willingly. Thus, whether for a manufacturing or a service organisation, this entails reducing or eliminating waste - anything that fails this basic test.

Waste has been broadly divided into a number of broad categories:

  • Overproduction
  • Unnecessary transportation or movement
  • Inventory which can be, although is not necessarily, the result of over-production.
  • Defects & breakdown
  • Over-processing
  • Waiting or delays
  • Poor or wrong information (and bad decisions)
  • Danger or safety hazards
  • Inefficiency through use of wrong materials or tools or poor training

The list is not necessarily exhaustive, but each category can use a significant amount of the earth's resources and/or have an impact on the environment. Consequently they are green credentials and thus need to more active championing by environmentalists and policy-makers.

"Green" has become synonymous with sustainability, but there is in fact much more to sustainability than just safeguarding the environment. And this is where "Lean" really comes into its own. Each of these categories affects an organisation's bottom line and hence its exposure to risk and its ultimate sustainability or long-tem economic and commercial success. Focusing on them inevitably drives continuous improvement which stimulates a virtuous cycle with further enhanced sustainability.

Yet, the effectiveness across all the categories is ultimately dependent on people. That is why "latent skill", or the failure to recognise the potential of people to make a greater contribution, has recently been recognised as a further category of waste. You, of course, know that is what I call "human economic waste" and that it was to eliminate this that I formed Zealise. But I don't think even I realised its impact on sustainability and just how green this makes my credentials! 

Valuing "Sweat Equity"

Do you ever find yourself amazed at how you have managed to overlook the obvious? I am not talking here about finding something in a place you have already searched 3 times (what my wife calls "male looking", even though she has also done it), but how sometimes you can overlook an obvious connection.

I experienced this recently. I was talking to someone about my method of creating employee ownership and they asked, "How does that differ from a co-operative?"

I was stunned, because I had never linked my concept of Human Capital with the co-operative model, nor, at an even more fundamental level, with the collective approach of pure socialism. Yet valuing employees and making them co-owners of the business to the extent of their value, clearly has similarities that warrants closer comparison.

Consequently I am in the process of developing a comprehensive answer. In the meantime, however, let me reassure you that my Zealise model does not erode the structure of a traditional commercial company. Certainly it adds a new dimension by acknowledging the people contribution, but Human Capital is essentially just a formal recognition of the age-old concept of "sweat-equity." To that extent it simply recognises that the people who actually carry out the corporate mission play as important a part in the business as the people who provide the capital equity.

The traditional argument is the one of risk and reward - that the shareholder risk is the greatest and so he is entitled to the rewards for taking that risk. I have no quarrel with that philosophy, but would simply point out that they are not the only ones who are taking a risk. The people who commit a third of their waking life to that company are also taking a risk. Who says that lost livelihoods are not just as serious as failed investments?

Indeed it could be argued that they are more serious. Not only are investors less likely to have "all their eggs in one basket" in the way that an employee does, but the investor arguably has more ability to guide the operations of the business and shape its outcomes. Employees can lose their livelihoods by challenging management or through simple management incompetence, while the astute investor can protect himself from such calamities.

In recognising this historical shortcoming and addressing it, the Zealise model in no way subtracts any of the powers of the shareholder. These remain completely unchanged, except for the indirect consequences of giving employees a greater say. And while many might argue that this is tantamount to a diluted stake in the business, I would suggest that it is no such thing, for two reasons.

Firstly, employee ownership means greater employee engagement which has to have a positive effect on the company's results. This means that, even if shareholders have a reduced stake, it will be more likely to be in a bigger pot - especially if ridiculous incentive schemes and their dubious benefits are simultaneously removed.

Secondly, employee ownership is more likely to offset the short-term thinking so prevalent in the economy today. Employees' vested interest in ensuring their livelihoods will create a greater focus on long-term business sustainability.

Sweat equity definitely needs to be recognised beyond just the business start up.

Why lack of employee engagement is a management problem

There is increasing evidence that suggests employee engagement is "this year's hot topic."  But is it being driven by management or is the subject being dominated by business schools and consultants looking for new sources of revenue?

The recent headline, "Employers don’t' understand engagement" certainly seems to imply the latter. It is based on a survey that concludes "49% of employers don't understand the level of engagement of their employees" while 42% "admit they do not know how to engage them." If they don't understand these fundamentals, it would seem more likely that the issue is an induced concern. Yet there are two reasons to think this is not the case. 

Firstly, the sheer pace of change demands adaptive, responsive organisations capable of reacting quickly to shifting demands. However, the generally poor record for implementing change suggests businesses are not meeting this demand.

Secondly, (and not unconnected) to remain competitive, a business requires a clear line of sight between strategy and implementation, with people all pulling in the same direction. Here too, the frequency with which managers and employees disparage each other's efforts suggests that such strategic alignment remains rare. 

The importance of these goals, and the difficulty in achieving them, must tell management that employee engagement is a problem. Consequently the lack of progress in solving it can arguably be attributed to two major factors:

  • A lack of urgency. Despite these pressures management have not realised what employee disengagement is actually costing their business.
  • Their having little or no idea as to the solution.

While business leaders remain largely disconnected from their employees and are rightly criticised for that, the fact is there is very little in the plethora of material written on the subject that offers them much in the way of practical solutions. Consequently, they are left feeling isolated and lacking the tools they need to redress the problem, which persists and grows. And all so unnecessarily!