Can we see a clear need for skills?

‘One of the fallacies earnestly and unquestioningly maintained by New Labour is that we live in a primarily individual economy. We don't. To adapt Adam Smith, it's not through the efforts of the individual baker, farmer and consumer that toast, eggs and tea materialise on our tables in the morning - it's through the very visible hand of Tesco, Associated Foods, Nestlé and the utility companies. No organisations, no breakfast. The consequence of living in an organisational economy is that management - the orchestration of collective activity - matters greatly: at least as much as individual ability and skills.’ (Simon Caulkin, The Observer, 10 August 2008) Time and again comes evidence that this lesson has still not been learned, the latest from the National Skills Audit for England 2010. There are two major flaws.

The first is the conflation of too many diverse interests into its aim “to raise UK prosperity and opportunity by improving employment and skills … to benefit individuals, employers, government and society … help the UK become a world class leader in productivity, in employment and in having a fair and inclusive society”. Good stuff, but – leaving aside fairness and inclusivity for the moment – what needs to happen to make people employable is very different from what any particular employer needs to do with people when they are employees. Individuals’ generic skills are more relevant to the former; managing the whole by bridging relationships in the spaces is more relevant to the latter.

Just take a look at the business of the many sector skills councils to see how this confusion traps them into offering employers training services for their (post-engagement) individual employees. There is a risk of seducing employers into thinking that their responsibility to provide training (let alone promote learning in and for the organisation) has been met and that the organisation can be expected to improve as a result. In practice, such skills training will make little difference organisationally because it fails to acknowledge the specific organisational context, and it fails to develop that context and thereby expand the organisation’s capability. It is not just Caulkin’s ‘economy’ that is organisational rather than individual, it is the improvement levers too.

The second problem is one of accurate prediction and its usefulness. However thorough the research, there is limited value in attempting to predict future needs ten years ahead (see report ‘Horizon Scanning and Scenario Building: Scenarios for Skills 2020’). No-one predicted the eruption on Iceland’s Eyjafjallajokull volcano. No one knows how long it will last, whether it will strengthen or weaken, the height of the ash cloud, how badly aircraft engines or holidaying families will be affected, or what this volcano’s stronger twin may do. We literally don’t know which way the wind blows. As our understanding of complexity science improves, we are slowly coming to terms with our humbling inability to make meaningful long-term plans and predictions, and to be able to link cause, effect and action.

The late Russell Ackoff, a systems thinker, identified scenario planning as a management confidence trick. At the same time, he points out that ‘few organisations are ready, willing and able to change in response to unanticipated internal or external change; they lack the responsiveness of a good driver of an automobile who gets to where he wants to go without forecasts of what he will encounter but the ability to cope with whatever occurs’. The paradox is that while it’s difficult to plan with confidence, you need to work out in advance what might prove useful if you encounter the unexpected.

Northern rocks

Two former senior executives at Northern Rock have been fined by the Financial Services Authority (FSA) for misreporting the bank’s arrears figures affecting near 2000 bad loans, masking its true health. One of them was the former deputy chief executive, David Baker, fined over £1/2m. ‘Alarm bells about Rock’s dangerous reliance on the wholesale credit markets might have sounded sooner if the true picture of rising arrears had been revealed in January 2007 when Baker made misleading statements to the City’ (Nils Pratley, ‘Financial Viewpoint’, the Guardian, 14 April 2010). When Baker discovered malpractice by the bank’s debt management unit, he failed to report the situation to the risk management committee or to the chief executive.

Pratley goes on to mention the “peer and market pressure on junior employees to hit targets on arrears. That’s a cultural failure …”, he claims. To be more precise, the failure of the culture lies in the bank’s values and the absence of a message to all employees that bad numbers cannot be hidden. By contrast, the targets are an aspect of how the system was designed to support those values. There are two points worth making here: the first on targets and the second on the nature of pressure to hit them.

Targets work in the sense that they do get results. People who are in receipt of targets take them seriously. Hitting the targets helps people’s job reputation and often their pocket too. But remember that these targets are mere proxies; they are arbitrary, imperfect but measurable inventions that try to capture something that is important but not directly measurable that lies behind the target (like improving the bank’s state of health). This nature of a target carries the risk that the target may be hit while missing what really matters. In this case, employees had to hit targets on arrears. Employees know that the target matters to them but may lose sight of what lies behind it (they may not even be told what really matters); and that can lead to short cuts and malpractice, especially if employees are given discretion about how to achieve their target, as in this instance.

While this was going on in the debt management unit, elsewhere in the system employees were being encouraged to make reckless loans; Northern Rock allowed customers to borrow more than the value of their homes as it sought market share. This too conveyed general messages to employees about the bank’s values and the risks it was prepared to take.

Besides ‘inviting’ employees to cheat (and then managers turning a blind eye), in systems terms there is always a price to be paid for hitting a target. This price needs to be understood, though it may be deemed a price worth paying. The problem is that a target applies to one component in a system that has been singled out for special attention. To achieve the target requires that it be given priority over other non-targeted functions. If people give more attention, time, energy, funds and resources to one area, they can do so only by privileging this area at the expense of others. There may be unintended consequences, some of them perverse or contradictory. One way or another, the performance of the whole will suffer. To believe otherwise is like saying at a child’s birthday party that the child whose birthday it is can have an extra large piece of cake, but that the other guests shouldn’t have a smaller piece as a consequence.

The second point is that pressure to hit targets can be insidious, implied and assumed. Employees don’t need to have a manager standing over them with a whip. Managers can make their wishes known more subtly. In the collapse of the Royal Bank of Scotland, staff around the CEO Fred Goodwin would get together to discuss what they thought Goodwin would want. Perhaps Baker worked out what his boss Applegarth would and would not want to be told. There was pressure on Baker as well as on the bean counters.

Iceland economy goes into deep freeze

Just as there are ‘wheels within wheels’ (according to the book of Ezekiel in the Old Testament) there are systems within systems. Little systems nest and overlap within larger systems. The banking collapse revealed a system operating (or failing catastrophically) at a very high level. The sudden and unexpected collapse of the Icelandic economy was one of the most dramatic consequences. The report into how three Icelandic banks failed and brought ruin to their country reveals systemic leadership failure on an astonishing level. Repeated below is a key section of Eirikur Bergmann’s chilling account (‘How Iceland lost its soul’, the Guardian, 13 April, 2010).

‘Newly privatised, each of the three main banks came into ownership of three nouveau-rich families in Iceland. The report graphically explains how the three business blocks then, in a kind of a testosterone-driven pissing contest, used the savings of generations of hard-working Icelanders to storm the global financial market, including the City of London.
'The report also shows that the crash was mainly caused by a systemic error within Iceland. By vigorously enforcing its deregulation policy the lassez-faire government created a monster it couldn't control: the Icelandic Viking-capitalist was born. Any voice of caution and classical wisdom was dismissed as old-fashioned. In an opinion-oppressed political environment the regulation industry was made laughable by the politicians and business elite alike.
'Then the Icelandic business Vikings headed for the high streets around Europe with their pockets full of borrowed money. Fresh out of business school Icelandic CEOs took over established companies in fields they couldn't even pronounce. The fast decision-making and risk-seeking behaviour of this new breed was hailed in the business media around the world, boosting the already overblown egos of these young alpha-males.
'Within one short decade we turned a traditional Nordic welfare state economy into one of deregulated bonanza capitalism. We somehow lost sight of our roots and values, as is evident in the part of the report that deals with ethics. The president of Iceland, Ólafur Ragnar Grímsson – who recently vetoed the Icesave agreement – is portrayed as the main cheerleader of the new business elite.
'When the clouds started to gather on the horizon in early 2006, all criticism against what we had grown accustomed to calling the Icelandic economic miracle, was dismissed as ill-intentioned whining by envious foreigners. Throwing nationalism into the mix of inexperience, the Icelandic government responded by launching a defensive PR campaign in London, New York and Copenhagen.'

One can speculate how this disaster might have been avoided. Most leaders lack a suitable mental framework to help them to see and understand the dynamics of what is happening around, between and even within themselves. Such a framework might have enabled Iceland’s leaders to fit the emerging pieces into a systemic picture as the awful risk unfurled. Without this facility to capture, process and make sense of the unfolding of events, valuable data appears like so much random and unwelcome noise.

Lessons must be learned

The NSPCC (National Society for the Prevention of Cruelty to Children) plays a key role in child protection in the UK. The Society is rightly exasperated with the seeming inability of the many parties involved to learn from past mistakes (‘NSPCC calls for reform of child abuse inquiries’ – BBC News, 8 April 2010) . ‘Lessons are not being learned’, claims the NSPCC. Too many recommendations from reports into past failures are not acted upon, it says. The same mistakes are repeated time and again. But is the problem with the way inquires are conducted and reported, or with how they are followed up?

The failings in child protection – including their repetitive nature – are, of course, systemic in nature. Children are protected by organisations working effectively (or ineffectively) as systems. Individuals play their part, of course, but within a wider and constraining system. If organisations fail to deliver, this whole system has failed. Attempts to blame individuals as though they are free and powerful agents are both misplaced and unfair.

The NSPCC expresses two interests: The first is to improve serious case reviews. These reviews follow individual child deaths, such as those of Baby Peter and Victoria Climbie, and recommend improvements. On this aspect my colleague Professor Eileen Munro of the LSE has undertaken pioneering research into alternative systemic methods of inquiry. Intriguingly, the NSPCC’s other interest is focused on post-inquiry implementation of recommendations for improvement. I discuss that next.

It may not be sufficiently recognised, by the NSPCC and other parties, that implementation of recommendations is also a systemic matter. If you examine the current post-inquiry implementation process that is undertaken following these reports, you can’t help but notice the absence of a systemic approach. But ‘lessons will be learned’ only if a systemic perspective is adopted after failure as well as before it. Improvement will not happen if implementation is simply left to players to pick things up according to how they see their particular roles and responsibilities in a typically run, hierarchical, silo-driven functional structure. Otherwise, the warts-and-all system will continue to thwart their aspirations to learn lessons just as it thwarts their good intention to provide faultless child protection in the first place.

It’s the system wot done it!

In November 2009 I wrote an article for the Guardian newspaper entitled ‘Sometimes it’s the workplace that’s stupid, not the staff’. My purpose was to support child-care social workers who were being singled out for criticism – by the media and politicians – in high-profile cases of child deaths or abuse.

Instead of a personal focus, the article showed how the behaviour of social workers was shaped by what was going on around them and between work colleagues and partners in their local structure. This ‘system’, I argued, was probably more influential than individuals’ own level of skill, capability, motivation and training. In other words, if not victims as such, workers are nonetheless vulnerable to the vicissitudes of their system. They are in a sense pawns, with a limited number of moves available to them under the rules, and they are themselves easily predated upon by those looking for a scapegoat – both from within their hierarchy and from outside their system.

My article showed that workers are often thought to be ‘stupid’. Indeed, the article triggered a handful of readers who have a pathological hatred of social workers, to vent their spleen on me as author of a sympathetic stance. They couldn’t stand the thought of ‘guilty’ social workers being able to escape their due by being able to claim “It’s the system wot done it.”

Yet we have all experienced a stupid system; for example, almost every encounter with a call centre. When something fails, ask if more than one person is involved in this failure. Ask whether there is something systemic about the performance failure, something that could apply similarly to other individuals that might go wrong. Might the failure recur if the design of the system remains unchanged? Indeed, is it the system that is stupid and needs spotlighting and improving?

A systems perspective is concerned with such questions as: who is allowed to talk to whom; how is accountability managed; how does leadership work; how does the organisation learn; how does the hierarchy operate, and how is power used?

In the fishtank analogy of a workplace, it is the quality of the water in the fishtank that determines the lustre of the fish. It is what people are surrounded by that shapes their work behaviour. Yet most onlookers see only the fish, and then criticise them. Seeing and challenging the system takes imagination, patience, and a thick skin.

Invitations to tender can suppress leadership

I am sometimes invited to submit a competitive tender for work, for example to run workshops. I nearly always decline – for three reasons. Firstly because of the costly inefficiency of a bureaucratic process that can waste considerable time for both parties. Secondly, the assumption that it is acceptable for multiple bidders to apply their creative effort in the knowledge that all but one will fail. Thirdly because of the poor quality of inter-personal connection, the game playing and second-guessing.

The challenge of obtaining value for money for the buying organisation, in an efficient and respectful way, which acknowledges the needs of the suppliers as well as the buyers, raises several issues about leadership.

Eastern cultures tend to prefer to develop reliable relationships with a small number of suppliers over time and stick with them. But this can work against novelty and new entrants. A case can be made for competitive tendering when it applies to purchasing commodities such as stationery. But it works badly when buying intellectual and creative contributions. Centrally organised purchasing departments can fail to make this distinction and be excessively driven by cost and uniformity of process.

There is something fundamentally wrong with a model that separates people into two groups: those who identify, understand and specify a need, and those who are then told what this need is and are asked to deliver against it. The approach is reminiscent of the division between head-office managers whose job is to think up strategies for front-line workers to implement. Or between systems analysts and computer programmers, which finds the latter often rejecting the former’s specification.

The same is true when it comes to human systems in organisations. Commercial imperatives may dictate that suppliers need to bite their tongue and comply with the buyer’s requests, but privately they may have misgivings about the buyer’s analysis. They may resent being kept at arm’s length from the organisation’s problems. They may want to challenge the buyer’s basic premise. They may have unrecognised expertise beyond that being sought. Once suppliers have landed the contract they may seek to reshape their offering, having kept this intention hidden initially.

How can this situation be improved? The aim of both parties should be to strive for authenticity, the minimalising of power differentials, the maximisation of trust between the parties, and a sense of partnership in matching problems and emergent solutions. There is only one way to do that: it means sitting down and spending time together, before specifications are hardened up, paperwork completed, and sums applied. If this kind of dialogue doesn’t take place at the outset, the strain, game playing and inauthenticity may remain during the period of delivering the contract.

In The Search for Leadership I discuss two possible mindsets behind inviting competitive tenders; one exhibits a managerialist approach and the other a leadership approach. In the case of the latter, the manager asks him/herself questions about the current tendering practice, including: ‘Why am I continuing to do what I am continuing to do the way I am continuing to do it?. What values and assumptions are driving the approach? What is being done merely out of habit?’.

Keep it clean, but only when I say so

Simple but flawed human nature offers the best explanation for the problems identified in the two most recent posts. The following real story makes the point well.

A manager was responsible for a machine shop. The shop was always dirty and presented a safety risk. He couldn’t get the workmen to keep it clean and tidy. So he hired a consultant to help. The consultant took photographs of the mess and pinned them up on an office wall. He then invited the workers to rate them. The workers were shocked when they saw the photos, seeing the mess with a fresh pair of eyes. They gave the photos very high (bad) scores for presenting safety hazards. They returned to the workshop and started cleaning up the mess. Job done? No.

The manager was most put out and immediately instructed them to stop. He explained that he had not given them the order to begin cleaning up the place. This was an affront to his authority. What he needed more than a clean and safe workshop was recognition that he, as manager, was needed and that his authority was to be respected. If there was going to be something closer to self-government in his workshop, it would come only on his terms.

Managers are sometimes the problem as well as the solution. But there is a solution to the problem of what to do with managers, and that is to see the manager’s role and how it adds value in a very different way – switching its focus from managing the people to managing the system.