The MTP Business Learning Blog

This blog is produced by MTP for senior professionals highlighting relevant and interesting books and articles on business, finance and strategy, and the opportunity to comment on them. It also contains news of MTP and its clients and, from time to time, extracts from MTP publications.

Wednesday 22 June 2011

‘How P&G tripled its innovation success rate’ by Bruce Brown and Scott D Anthony, Harvard Business Review, June 2011

My long standing contact and previous employment with Unilever has caused any reference to Procter and Gamble to be a combination of hostility and grudging admiration. They have been a formidable competitor over the years yet have also had their ups and downs, and revelations about the way they operate have not always painted a pretty picture.

So I was sceptical about an article which claims that P&G have a formula that increases innovation success rates; I would not dispute that it might work for them but would question whether any formula would work in other less controlling cultures. This scepticism was increased when I read early on that there has been a ‘strategic effort to systematise innovation and growth’. Surely the systemisation of innovation is likely to stifle creative thinking, particularly as the CEO Bob McDonald says ‘There needs to be an emotional component, a source of inspiration that motivates people’.

Clearly P&G had problems in this area in the early 2000s when only 15% of new innovations were achieving targets. They introduced what they called a ‘Connect and Develop’ process with different stage gates but this did not do enough to satisfy senior management. The top management were disappointed that innovations were merely incremental; they were looking for more breakthrough ideas that would change the market place.

The answer was another organisational change, introducing ‘new growth factories’, based on the ideas of a Harvard Professor, Clayton Christensen, who developed the concept of disruptive innovation. The new growth factories were effectively cross-functional teams with the brief to challenge existing thinking; where the opportunity was big enough, these people were taken away from their existing businesses and functions to operate full time.

This seems a good idea even though it is not particularly new - for many years a range of companies have operated such teams outside the normal structure - but the article claims that success is due to the processes operated by the teams. This is where I began to have my doubts and to think how typical this is of a company like P&G, famous for its close top down control. Each of the ‘factories’ had to have the following:

• New growth business guides
• A step-by-step business development process manual
• Specialised project and portfolio management tools
• Innovation and strategy assessments
• Training in key innovation concepts

This may have worked in P&G but it’s hard to see this kind of structured approach working more generally; it seems the complete opposite of the thinking in most other businesses, initially stimulated by ‘In Search of Excellence’ nearly 30 years ago. The general view was that breakthrough innovation is more likely if it is right outside the normal structure, unencumbered by bureaucratic processes.

The article moves on to suggest various lessons that have been learnt from the application of this approach but these are not particularly new or helpful; they mostly relate to the need for a centralised and coordinated approach which is aligned to the P&G culture. One interesting and unexpected point towards the end was that they recognised the need to bring in outside talent, because the effectiveness of these groups was restricted by the practice of promoting from within. A temporary swop of personnel with Google was a particularly eye catching example of this practice.

The article claims that the new approach is working well and describes a number of successful breakthroughs to prove it, the most interesting of which was the launch of Tide Dry Cleaning shops, which was news to me. And the success rate of 15% has grown to 50%, which proves that it is delivering value for P&G. Whether it would deliver value for others is more questionable and this makes the article of passing interest rather than practical value.

Click here to read the article in full:

http://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate/ar/1

‘A match made in heaven’ by Russell Deathridge and Marija Potter, Training Journal, June 2011

I chose this article from TJ because it was a change from the usual repetitive contributions by training consultants who tell us yet again that training needs to be focussed on business needs or that there is a wonderful new approach to evaluation. The authors are from Kenexa, a US consultancy who seem to have established a reputation for leadership development and who are working with several of our clients. They tackle the long standing debate about the difference between management and leadership and then move on to discuss the more practical issue; once you have defined each one, can you and should you separate their training?

The article starts with some useful retracing of the history of management thinking, which took me back to my early Ashridge days (I recall a joke that, if you were five minutes late for the Principal’s lecture on this subject, you missed the first 100 years!) The authors quote Fayol’s definition of management as forecasting, planning, organisation, commanding, coordinating and controlling, thinking which led to management being seen as a scientific process. Only those at the very top were expected to worry about people and culture, which were seen as separate issues.

We are then reminded that it was Mintzberg who first began to see management in behavioural terms with his suggestion of three core areas - interpersonal, informational and decisional. And this thinking gathered pace to the point where it is now taken for granted that managers at almost any level are responsible for the development of their people, and for integrating the hard and the soft elements of the role.

Having made an interesting if rather theoretical start, the article then goes much too deeply into more theory, suggesting eight different theories of leadership which are too obscure and overlapping to be of interest to the average learning professional. The conclusion of all this theory is the assertion that the responsibilities of the average manager today are much more complex and challenging than 50 years ago. In addition to the greater people responsibilities, there is the need to understand a global environment and to be measured by a wider range of KPIs, not just financial metrics.

I was still thinking ‘so what’ when we finally got to the point on the third page of the article. The key argument is that the barriers between management and leadership have broken down and the two elements should be seen as an integrated continuum. This seems rather obvious but the authors then make the point that most management training design assumes that these elements of a manager’s responsibilities can be divided, with either separate courses or an ‘integrated’ programme with separate sessions on hard and soft skills.

This is certainly something that we have seen in a number of companies and business schools and we try very hard to avoid such separations in our course designs and material development. For instance we frequently develop business simulations and exercises/case studies that combine finance with communication skills. The authors accept the importance of integrated design but suggest that their key factor for integration is the way the facilitator operates, acting as instructor for management topics and facilitator for leadership, looking at present day management problems while also looking forward to future strategic issues.

The article makes this point effectively and is well written, but I would have preferred to see less coverage of theory up front and more on the implications for programme design and learning outcomes.

Click here to read the article in full:

http://www.trainingjournal.com/feature/articles-features-2011-06-01-a-match-made-in-heaven/

‘Tutors to the world’, Schumpeter column, Economist 11th June

Once again the Schumpeter column covers a management theme that is both relevant and topical - the internationalisation of business schools. It starts with an interesting assertion that intuitively I would have rejected; that academics in business schools lead the way in internationalisation compared to academics in other disciplines and, during the last 10 years, compared to business itself.

I have no knowledge of globalisation in other academic disciplines and have no reason to doubt the assertion, but I am much more sceptical about the comparison to business. Maybe there has been some catching up recently but my experience - and that of our clients - is that the globalisation of business schools has been well behind business generally. It’s true that there are some high profile shining lights such as INSEAD who have opened up in other countries and established relationships with overseas schools, but there are still many in the USA and elsewhere that are highly insular and parochial.

The American schools quoted in the article - Wharton of Philadelphia and Booth of Chicago - may have established campus’s abroad but have they changed the backgrounds of the professors and the way they teach management topics? I have no first hand background to challenge the claims to recent progress but I recall from a past tour of the American schools and from examining their material, that an ‘international case study’ was often a US company looking to move into new markets.

However there are some interesting statistics to back up Schumpeter’s argument. It is no surprise that a large number of participants in American MBA programmes are from other countries - 34% according to the article - as this has long been a rite of passage for bright overseas students wishing to make a career in business. More surprising is the fact that the faculty from outside America are now as high as 26%, though lagging behind European Schools with 46%. These proportions are much higher than I would have expected and perhaps confirm how much needed progress has been made recently. Blog followers may recall my past review of the book by Philip Delves Broughton about his time at Harvard, which quoted the dissatisfaction of many international students with the parochialism and US centric attitudes of the faculty.

The article also makes the excellent point that a mix of nationalities does not necessarily achieve a truly international perspective if the students are cosmopolitans who have grown up working for multi-national businesses. And a visiting American professor running a generic case study will not necessarily focus on local issues, unless there is strong pressure to do so.

The extent to which new business schools are growing worldwide is mind boggling. There are 13,000 in total of which 2,700 are in India and China; Spain’s leading school, IESE, has set up schools in 15 countries. The good news about this is that it will increase competition and hopefully bring down what the article describes as ‘exorbitant costs; the potentially bad news is that quality will suffer as the resources - in particular high calibre faculty - are stretched increasingly thinly. There will also be what the article describes as ‘snake oil salesmen’ falsely claiming global status; an interesting example is the Moscow School of Management offering an MBA with an emphasis on corruption!!

The article should perhaps have mentioned the increasing trend for business schools to run programmes tailored to company needs, where the need to globalise depends on client preference. In this case the globalisation has to be real and practical, something which the more academic business schools find hard to deliver. I cannot pretend to be objective here but my perception is that business schools are increasingly the providers of business education for those who are from smaller businesses and/or want to further their career ambition outside their current situation. Global companies will find more tailored solutions and this may cause a high proportion of those 13,000 schools to have difficulty filling their capacity.

Click here to read the article in full:

http://www.economist.com/node/18802722

‘Before you make that big decision…’ by Daniel Kahneman, Dan Lovallo and Olivier Sibony, Harvard Business Review, June 2011

In the last blog I reviewed an article by Olivier Sibony in the McKinsey Quarterly, covering the ways in which Chief Financial Officers can and should remove bias from major business decisions. This article builds on this coverage in two ways; by involving two academics from Princeton and Sydney Universities (thus helping to get placed in the HBR) and by extending the responsibility for removing bias to all senior management.

The article starts by introducing some of the different types of bias that we at MTP have found to be powerful for our coverage of business case decisions:

• Confirmation bias, ignoring evidence that contradicts their prior view
• Anchoring bias, weighing too heavily the information that justifies that view
• Loss aversion, an overly cautious approach caused by fear of failure

I was however surprised that motivational bias was not highlighted early on, because we find this to be the most common distorting factor in project decisions; the way in which managers fall in love with an idea and lose all sense of objectivity. This is particularly common among those involved in acquisitions and a typical feature is zero tolerance of more pessimistic voices.
The article claims that the removal of bias in decisions makes companies’ return on investment 7% higher, based on McKinsey research of 1,000 businesses. One wonders about the validity of the research and the other factors that impact ROI but the presence of two respected academics presumably means that this is a true correlation. There is then a sweeping assertion that business executives are incapable of recognising and removing their biases, therefore they must look to others and to the use of suitable tools. I wonder how many CEOs would agree with this assertion and how difficult it must be to make them believe it of themselves. They are almost certain to be biased about their own biases!

The argument that bias cannot be removed is based around the division of thinking into ‘System One and System Two’ elements; System One is the intuitive reflex way of seeing the world, System Two is when we adopt rule based reasoning. The authors’ view is that System One determines most of our thoughts and is the inbuilt source of bias; we cannot, on our own, change what is instinctive. Therefore the solution has to be at the organisational level and must involve more than one person, an interesting challenge for CEOs of an autocratic disposition.

The article then introduces three scenarios as examples of major decisions; a radical pricing change, a large capital outlay and a major acquisition. Though it is good to see practical examples, these are anonymous and seem to be fictitious, which makes them less than convincing; they also seem to add little to the argument.

More useful was the checklist of 12 questions which are intended to question for bias and lead the way to it being removed, looking particularly for self-interest, excessive love for the project and dissenting opinions. There is not space to repeat all 12 questions but the following are among the best and should provide a flavour:

• Is diagnosis influenced by salient analogies? (a rather pretentious way of saying, ‘has a recent success made you think you can do it again?’)
• Is there a halo effect, are we attributing past successes to the personalities of those involved?
• Is there an atmosphere of over confidence which causes us to underrate competitors?

The process of asking and answering these questions is inevitably time consuming and disruptive and the article suggest that this approach is only for the big decisions. It is also important that the review and final decision should be organisationally separate from the team that makes the recommendation; it would have been good to hear more about this, in particular the role of the CFO in making sure it is fully objective.

It is good to see such an important and practical topic being aired in the HBR but I was still left wondering how many CEOs would accept the logic and the process when that next vital acquisition target becomes available.

Click here to read the article in full:

http://hbr.org/2011/06/the-big-idea-before-you-make-that-big-decision/ar/1

‘Dream Schools’, Director Magazine, June 2011

This article continues the theme of the review in my last blog, that a key strategic priority for top management in the modern era is retaining innovative and entrepreneurial people. Gone are the days when such people were long term servants; now they will go where they are motivated to go, and that may be more about excitement and challenge than about money.

Articles in the Director are never short of examples and quotations, often so much that it gets in the way of the argument, and this is no exception. However, unlike other articles, the examples are well chosen, starting with that well known example of innovative success, Innocent Soft Drinks. One of Innocent’s founders, Richard Reed, is philosophical about losing innovative people and is proud of the number of former employees who have founded start-ups after leaving.

This raises a key question, not only can you retain such people over the long-term but should you even try? Reed sees losing innovators and entrepreneurs as the ‘flipside to running a truly entrepreneurial company’. Another modern success story, the Internet company Paypal, has seen former employees found new businesses and the CEO sees his ‘alumni network’ as a source of pride, including the founders of Linked In and You Tube. I wondered however if he would feel the same way if his alumni had opened up in more direct competition in markets with less growth potential.

The article then moves on to describe the common phenomenon of the early entrepreneurial culture which self-destructs as companies get bigger, become bureaucratic and are under pressure to grow profits. Ten years ago Microsoft innovators were becoming frustrated and leaving to join Google, now Google are finding the same problem as their people move to Facebook. How long before Facebook start to lose their people to the next big thing? This is partly technical according to the CEO of software company Red Gate; innovative people are not enthused by developing the fifth or sixth version of Windows but instead need new challenges.

Google has tried to solve this problem by giving 20 days ‘innovation leave’ and have found that this has led to breakthrough innovations. The key to keeping the true innovators is to continue to give them work they feel passionate about, to expose them to risk and excitement; otherwise it’s best just to let them move on to new challenges. Even though Innocent has accepted the eventual loss of some of its innovators, it still does what it can to delay the inevitable. It has developed a start-up incubator programme and the people involved report direct to the CEO, outside the normal organisation structure. This has some similarity to Procter Gamble’s approach above, though I am sure that Innocent would not go for P&G’s highly structured process.

This is an interesting if slightly shallow article which challenges some of the conventional wisdom around retention of people. It suggests that the loss of creative personnel should be managed rather than resisted. It would have been good to see this argument expressed more cogently, rather than presented mainly through examples and quotations.

Click here to read the article in full:

http://www.director.co.uk/

‘Bounce’ by Matthew Syed, published by Harper Collins

Syed is an unusual example of a top sportsman who has become a high class journalist with a reputation that owes nothing to his previous career; his articles in the Times have for some time shown that he thinks deeply about the way sports people perform.

The reason I have chosen this book for review is twofold; it builds on a book that was reviewed in one of last year’s blogs - The Outliers by Malcolm Gladwell - and even though its major focus is sport, it has clear relevance to anyone involved in talent management.

The overriding theme of the book is that the concept of ‘natural talent’ is seriously over-rated and in many cases does not exist at all. Sometimes Syed goes too far in this argument and you feel that his arguments are almost semantic; for instance he argues that black athletes do not have natural talent but are instead the beneficiaries of their specific circumstances and those of their ancestors, for instance the altitude, climate and customs of a particular region of East Africa led to the dominance of Kenyan distance runners.

This thesis could be challenged by arguing that if someone inherits physical characteristics from previous generations, that could be described as natural talent even if its original source was the unique environment in which ancestors lived. He makes a similar argument for the superiority of black sprinters which is rather less convincing and you sometimes get the impression that he is selecting evidence to support his theory, rather than presenting a range of objective information.

Nevertheless he presents a powerful case for the view that natural talent is frequently overrated and is confused with opportunity and practice. He subscribes to Gladwell’s theory that you can only become world class at most skills if you have at least 10,000 hours practice; he suggests that usually ‘child prodigies’ are not naturally talented but have just been given early opportunities to practice more than their peers; then they are picked out for even more practice and greater opportunities. Though I was broadly convinced by the 10,000 argument, Syed takes it even further by implying that anyone who puts in 10,000 hours can develop high class skills; on the radio I heard him say that he could convert almost anyone into a county class tennis player with the right amount and quality of practice. This seems to me to ignore the essential need to have minimum standards of inbuilt physical characteristics (the four S’s of size, speed, strength and stamina) which can only be improved up to a certain point.

Syed’s style of writing is excellent and makes you really want to move on, starting with his fascinating description of his own career and how it was a unique set of circumstances and opportunities that made him British champion, not inbuilt talent. His argument is justified by the amazing number of people in the same area who became high class table tennis players at the same time. It is also impressive that, like Gladwell, he doesn’t confine his evidence to sport; for instance, he believes that areas where natural talent is overrated extend to chess, music and memory tests.

The question for management learning and development is how far we overestimate natural talent when appraising and developing managers. The management of talent is a topical theme and one often hears that there are ‘natural leaders’ or that some managers have a ‘flair for numbers’ or ‘intuitive business nous’. Many of us make assumptions that there are some things you cannot teach and that we should instead concentrate on what we can change.

Reading Syed’s book should at least make readers question many of these assertions though whether anyone can spare 10,000 hours to become a world class manager is open to question!

The Blended Learning Cookbook by Clive Shepherd, published by Onlignment

About a year ago I bought an IPad with a view to using it for my book reviews and, despite good intentions, I have only used it occasionally for that purpose. There were two problems apart from my natural resistance to change; firstly many new books were not immediately available through I Books and secondly it was difficult to browse (as I would in a book shop) before deciding which to buy and review. I decided this time to make a more determined effort and both books were in fact available on-line, though the browsing problem still remains. On the more positive side, it is so much easier when travelling and the visibility and convenience of reading is much enhanced.

This book is short and to the point, which makes it easy to read but lacking in depth. The introduction is well written and makes many good points, arguing that, though blended learning is not new, it has become a more powerful and relevant concept as new learning methods have evolved. He points out that the pioneer of blended learning was the Open University nearly 50 years ago though, from his description of the present OU packages, they haven’t changed much since I worked on them. Certainly the combination of text, cassettes, TV and face to face training was well ahead of its time back then.

The title of the book relates to the structure of 28 ‘recipes’ which are effectively short, practical case studies of different types of programme which require different blended combinations, depending on the objectives and audience. This makes it an easy book to dip into rather than to read from cover to cover; it is interesting to observe the different approaches even if many are outside one’s normal orbit, for instance the range extends from technical training for air traffic controllers to courses in basic literacy.

I liked the structure by which each programme was described - situation, strategy, blend, rationale - and the framework for structuring the content - preparation, delivery, application, review. I found myself disagreeing with some of the solutions where the type of programme was familiar to me, but in a positive way. I could usually understand the reasoning, recognising that in practice it is impossible to decide a perfect blend without knowing the context and the audience in detail.

I would like to have seen more focus on some of the practical problems - for instance how to ensure that self-driven learning is carried out by busy and less motivated managers - and, because of this weakness, the book has a theoretical rather than practical feel. There are four appendices which just manage to take the content over 100 electronic pages and these provide more useful structure, based on the framework of Clark and Whittrock that I had not come across before; learning methods are divided into Instruction, Exposition, Exploration and Guided Delivery. These different methods are then related to the nature of the topic and the audience. The pros and cons of different learning media are also covered though this is all rather obvious for the experienced learning professional.

Overall this is an easy read and of likely interest for everyone and of benefit for the less experienced learning professional. And if you have an IPad or a Kindle, it’s only a click away!