Labnotes

Insights, ideas and inspiration from MLab

Issue 10 | December 2008

Management 2.0

Theory Y meets
Generation Y
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Think of the most innovative high-tech companies. What comes to mind? Most people start with Google Inc. and then perhaps Apple Inc. After that, its less obvious. Microsoft Corp. is usually overlooked in these discussions. Conventional wisdom views the software colossus as the innovator of the previous century and now the master of carefully orchestrated software development projects such as Windows and Microsoft Ofce rather than a developer of creative and innovative working practices. Think again. Ross Smith, an 18-year veteran of Microsoft and now director of the Windows Security Test Team, is working to show that innovative management techniques are alive and well inside the worlds best-known After Windows Vista shipped in 2007, Smith took over the Windows Security Test Team effort. As part of his preparation, he met individually with everyone on the team all 85 people. As I was doing these meetings, I began to realise the depth of talent in this group. Over a third of the team had a masters degree or higher, which is very unusual. And from the annual employee survey, I knew people were feeling underutilised. The nature of our work is unusual it is intense and painstaking, but it ebbs and ows, which means sometimes theres spare capacity in terms of brainpower, and even effort. And of course, if youve got your doctorate from Carnegie Mellon University and youre running some manual tests to verify a piece of code, its logical you would feel underutilised. So it got me thinking about what we could offer these people in terms of guring out how to apply that talent? The team is lled with people routinely labelled Generation Y. This time the broad brushstroke label actually applies. As a Millennial on the team puts it, Despite everybody talking about how Microsoft is an old company, theres still a lot of young people being hired, and a lot

In this issue
Bankers bulimia
Gary Hamel uncovers the all-too human frailties behind the global nancial meltdown.

Julian Birkinshaw and Stuart Crainer look at a Microsoft team that is changing the way it works by incorporating the interests of its young employees to increase creativity and productivity.

Gore inspiring
====

10

W.L.Gore and Associates dees managerial convention and is spectacularly successful. CEO, Terri Kelly, explains business the Gore way.

Play hard, work hard

12

Spending time on social networking sites may be something companies eventually encourage. Julian Birkinshaw examines innovations in the way we socialiseand work.

No half measures
Whole Foods Market combines prots with principles. CEO, John Mackey, explains how and why.

14

Out and about with MLab

Forthcoming and thought provoking, the latest MLab events.

15

technology company. Smith leads an 85-person test team in the companys Windows division. The team works to ensure the quality of Windows security-related features. It may not sound sexy, but it is high-pressure, high-status work within Microsoft. Marc McDonald, the very rst Microsoft employee, is part of the team. Others have chosen to join the team after successful development manager jobs elsewhere. Expectations are high as hundreds of millions of people trust and

The David and Elaine Potter Charitable Foundation

demand that features work correctly and Windows is trustworthy.

www.managementlab.org

2 | Labnotes

Theory Y meets Generation Y continued...

them are being hired because they want to be there. They are sharp and tend to do many things on top of their normal duties a lot of the time this is what you have to do to get noticed. The testing team members live online, love competition, devour technology in any form and, perhaps surprisingly, are avid readers particularly of books such as Malcolm Gladwells Blink and James Surowieckis The Wisdom of Crowds. Add in the fact that Generation Y learns differently and embraces social networking tools, and the challenge to conventional management becomes clear. As one of the Windows Security Team says, Generation Y wants to work on cool, cutting-edge projects, and Generation Y wants to be recognised for its work by peers, family and friends. And if such projects arent provided in the workplace, many will choose to nd them in online communities and work on them for free in their spare time. As Smith got to know his new team and started to understand what made them tick, he saw an opportunity to do things differently. We wondered if we could bring that extra effort inside Microsofts walls and share our human and corporate resources to encourage some of that innovation to happen right here. We wanted to create an environment where the team could have more freedom with the how rather than be relentlessly preoccupied with the what. The challenge, in other words, was how to apply Theory Y to Generation Y. Theory Y says humans are intrinsically motivated to do a good job, and if the right conditions can be created, employees will give their discretionary time for free. Theory Y behaviour came naturally to Smith. Two decades at Microsoft had given him a good intuitive feel for how to get the best out of people. And he attracted a loyal following.

He genuinely cares about people, and in a very unique way. Theres a lot of humour. Hes, really down to earth, and a lot of fun to work with, says Lori Ada Kilty, programme manager, one of Smiths closest colleagues.

written in terms of innovation, risk-taking, experimentation and managing failure, but were very focused on a set of predictable deliverables. Theres an emphasis on predictability, stability and reliability and thats at odds with what you read about trusting, innovative environments. We thought that if we could encourage managers to work to build trust on their teams, then that might lead to more satisfaction, more innovation, employee growth and so on. People are more likely to have fun at work if they trust each other. With that realisation, the team thought it had something tangible it could pursue.

Starting points
In early 2007, Robert Musson, a developer on the team, stumbled on a paper by John Helliwell and Haifang Huang at the University of British Columbia that examined the relationship between trust, pay and job satisfaction. Musson reected: Trust in management is, by far, the biggest component to consider. Say you get a new boss and your trust in management goes up a bit at your job (say, up one point on a 10-point scale). Thats like getting a 36 per cent pay raise, Helliwell and Huang calculate. The team began to think about how trust worked in the Microsoft environment and noticed a mismatch between the general theories and the situation of his team. When it comes to trust, theres a lot

Improving trust
Trust, of course, is a large and abstract issue but one that lies at the heart of working life and working relationships. Its like freedom and air, Smith says. You know when you dont have it, but its really hard to measure it and to know when you do have it.

Labnotes | 3

Add in the fact that Generation Y learns differently and embraces social networking tools, and the challenge to conventional management becomes clear.
Free Pizza - Ross (with pizza) and the team prepare for a meeting

The rst step, therefore, was to brainstorm to identify the behaviours affecting trust that people saw in their day-to-day work. As this progressed, the team created some games and experiments with voting to try to prioritise the lengthening list and to learn more about what could be done to increase trust. At http://www.defectprevention.org/trust, readers can view one of the games the Microsoft team used to develop its trust model. Users are asked, Which trust factor is more important to you? and then given a series of two-option responses such as Dont skirt real issues and Dont bury your head in the sand. Users can select from as many pairs as they like, then view the compiled results from all who participated. The result was a better-ordered list of trust factors. The trouble with this approach was that it was situational the ordered list might apply to me, but it might not apply to you, or, it might apply to me on Tuesdays but not on Fridays. More research led to the creation of a playbook for people to reference and use. Things like be more transparent or demonstrate integrity were highlighted. The challenge was to link these notions to tangible activity. Members of the team then worked to write up a paragraph on each trust behaviour. This information was then opened up as a wiki to generate community participation and build understanding. Around 40 per cent of the Windows Security Test Team actively contributed to this process.

the program. They can range from people presenting their ideas to brainstorming, but really, the main goal is to keep the programme alive and build relationships around the team. The structure is really at everybodys ideas get equal billing, and everybodys comments are valid. We try to make sure that theres no hierarchy in the room. It gives people a forum to share their ideas and to share the projects theyre working on. One conversation led to another. Some Web-based tools for sharing information about project status, submitting calls for help and promoting new ideas were introduced. The hope is that people will vote with their feet for good ideas, Smith says. Theres no community rating system or voting for each idea. Ideas are like children everyone loves their own. And we wanted the programme to support that. If you see an idea you like, you can just talk to the person whos listed on the site. This gave people another platform for promoting their ideas. By now, the team has had a couple thousand slices of pizza, devouring topics such as debugging techniques, improving customer feedback, identity theft, how to think creatively through problems, and new products from other teams around Microsoft. says the computer, and that quite denitely is the answer. I think the problem, to be quite honest with you, is that youve never actually known what the question is. The number 42 helped to capture the quirkiness of the teams approach and the broad objectives of the programme itself. It also tapped into the Generation Y spirit. During 2007 and 2008, the programme grew organically, and tentative steps led to a profound cultural shift within the team. As Jonathan Ng, a recent computer science graduate and software development engineer in Test observes, The best thing about 42Projects is the fact that you can just jump right in and dene your own role. Self-role denition in the context of a work career isnt really something that happened until recently.

Giving it a name: 42Projects

The spirit of learning, trust and respect for new ways of working was coming alive in the Windows Security Test Team, but it needed a name. They needed a brand to represent the changes that were happening. They settled on 42Projects. For the uninitiated, the number 42 is the answer to the life, universe and everything in Douglas Adams cult classic The Hitchhikers Guide to the Galaxy. In the book, it takes the Deep Thought computer more than 7 million years to gure this out I checked it thoroughly,

Pizza with everything

To keep the dialogue open, the team started a weekly free pizza meeting in the autumn of 2007. It proved to be a powerful forum. As Smith explains, These meetings started with trust and have evolved along with

Inventing tomorrows best practices today

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Theory Y meets Generation Y continued...

Whats more, it appealed to senior members as well. McDonald was Microsofts rst employee, a friend of Bill Gates in high school and a key member of the Windows Security Test Team. As he describes, 42Projects tries to recapture the feeling and passion you have at a small start-up or at the beginning of an industry by breaking down the stratication of a large organisation. The team also has a dozen senior Microsoft employees on the team with more than 10 years at the rm. The programme appeals to them as much as it does their Generation Y colleagues.

42New Engaging with Generation Y

Another important step forward was to capture raw feedback from new employees. The 42New programme, as it became known, targeted employees with less than two years experience to share their ideas in a separate forum. As Kilty explained. We hire really intelligent people and when they rst start, they are left to gure things out on their own. Many feel we dont necessarily take the time to hear what they have to say because they dont have a lot of experience. So we started a group called 42New. Its a forum where there are no managers, and new hires can get their voices heard. They get together, get their ideas out and talk about things that are bothering them or things that they would like to see.

They bring a fresh perspective and the information ow is in both directions. One of the members is Sowmya Dayanand, software development engineer in Test: 42New is an opportunity to ask questions and not be judged. Nothing is out of bounds. Often things make more sense when you understand the history and the vision in informal discussions without fancy jargon and PowerPoint presentations. The output from this group goes directly to Smith: Its been a terric place to identify some obvious areas of improvement for new hires and for everyone

the event. Weve tried to take this a step further. Using games is a powerful method to inuence changes in organisational behaviour, though it requires care in the design and use. Ben Sawyer, co-founder of the Serious Games Initiative, a Washington, D.C.-based start-up, concurs. While everyone in the enterprise is chasing games for training, the real promise for games is in changing how enterprises work, think and administrate, which will have much more dramatic changes on productivity through games than the odd training efciency. I sincerely believe that, and few people spend more time thinking about serious games than I do. As an example of a productivity game in software development, team members might be encouraged to try a security feature and describe their experience or look for problems in other areas. Because this is not part of their regular job, they typically will not make the time to volunteer to do this, despite its effectiveness at eradicating defects. But, if a game is built around the activity, and each player is awarded

Playing games
Games, and the spirit of gaming, are fundamental to Generation Y. The importance of game playing as a means of learning was not lost on the team. Smith explains: When a product needs a bit of a push toward a certain behaviour, building a productivity game around it can help. A common approach in the past was for the Windows Security Test Team to host a bug bash for an evening and give a prize to the person who found the most bugs during

Trust, of course, is a large and abstract issue but one that lies at the heart of working life and working relationships.

Labnotes | 5

The real promise for games is in changing how enterprises work, think and administrate, which will have much more dramatic changes on productivity through games than the odd training initiative.

points, or there is a leader board on display with the latest standings, then volunteerism and participation skyrockets. Games built around a goal like this have resulted in a 400 per cent improvement in participation levels for some activities. The Windows Security Test Team looked for ways to build the principles of gaming into its work. For example, one team member had a desire to learn a new development technology and built a prototype of a customer feedback game. He was able to connect with another employee who was developing an idea to use native language speakers to help verify international versions of Windows. The two collaborated and built a game system where people can play games to validate localised text strings. Our culture is competitive. People by nature love to compete and play games and want to see themselves at the top of the leader board, says Mark Hanson, test manager.

The team had a visit from Mike Armour, author of Trust-Centered Leadership, and recently hosted a discussion with Adrian Gostick, one of the authors of The Levity Effect. When we heard from Mark Hanson at Microsoft [Windows] Security [Test Team] about the 42Books programme, our rst thought was, Hey. Bill Gates wants to buy 42 million copies of our new book, The Levity Effect, Gostick recalls. Unfortunately, it really was 42 copies. But after speaking with Mark, we realised that Microsoft [Windows] Security [Test Team] was a real nd. The leaders of the team had actually read the book and were working hard applying the techniques to enhance camaraderie, communication and creativity in the Windows Security [Test Team] environment. We joined one of their pizza-book-chat meetings via the phone and answered questions, laughed a lot and explained more about our research. This is one group that proves the ndings of the million-person research study in The Levity Effect it really does pay to lighten up. All of this is linked to an evolving process of change. We have had a few cases where someone has an interest in learning something and instead of going home and working on it, they have brought it inside. Whether its a book, an idea, a project, a course doing it here exposes them to more resources, people whove done that,

used that technology before, as well as potential customers for their end result, Smith says. Trust, too, is constantly evolving. Were giving people the latitude to go off and do their own thing. We trust them to do their regular jobs and to experiment, innovate and have fun. Were developing a level of trust where theres no required accountability that you need to log your time or provide an example of what you did during that day when you worked from home, Hanson says. As ideas are implemented and gain popularity, the team works with other incubation efforts across the company to nd more permanent homes for projects, or individuals may continue to plug along at their own pace.

Spreading the word

Success has not come easy for the team. Dramatic change doesnt normally bubble up from the bottom. But there is now solid evidence that the change programme kicked off by Smith in early 2007 is paying dividends.

Reading material
Even before Smith took the helm, one of the sources of inspirations for the team was the written word. Defying the Generation Y stereotype, a big portion of the team is composed of voracious readers. One book in their eye-opening library was Gary Hamels The Future of Management. It felt like hed been sitting in our meetings, Smith said. The team started a book group called 42Books, which encourages reading and discussion on various texts, and blew their book budget, mostly centred on books about innovation, leadership and trust. You can learn a lot and stay current by just attending a book review, observes one Generation Y team member. If you like what the book is about, then you can go read it.

Inventing tomorrows best practices today

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Theory Y meets Generation Y continued...

Our focus is on making the employee experience on our team the greatest that we can make it and from that comes innovation, productivity, and employee satisfaction.

Employee retention rates within the team are higher than they have ever been an important factor in a specialist activity such as testing. Productivity numbers are improving as skill levels rise and people become more knowledgeable about each others areas of expertise. Engagement and cross-team contributions are rising. Whats next for Smiths cultural revolution? How can the engagement he has created in his division be leveraged and scaled across other parts of Microsoft? Word is starting to get out. In September, Smith was given the chance to post his views on the Microsoft internal blog site, which is open to Microsofts 60,000 employees around the world. With only one open slot every week or two, this was a big deal. His post focused on the spirit of 42Projects: It was basically, think back to the day you started at Microsoft and the energy you had, the feeling that you were there to change the world. I asked, Do you still feel that way today? And then I touched on some of the themes of 42Projects: trust and empowerment, those things. That these things can start with anybody. You dont need an executive to say, OK, lets all start to trust each other. You can actually take steps yourself. If you improve how you manage work, the prot potential is unlimited. The blog got a lot of responses from people across Microsoft, most of whom added their names (the usual format is anonymous). So people were willing to put their name out there along with their comments. Jan Nelson, programme manager for the Windows International and Management Excellence Leadership Team, describes his reaction: What I nd most valuable about the idea of a 42Projects community is the potential for anyone, irrespective of hierarchy, to be creative, create new tools, products, work on team dynamics, whatever. 42Projects is an effort to provide an open framework where it is OK to try stuff out and publish what worked and what did not without fear of performance assessment. In a meritocracy, this is a fresh and rare opportunity that needs closer examination and support. Mike Tholfsen, a test manager in the Ofce Division adds, Finding 42Projects was like walking into a haven of all the things I hold dear building trust, experimenting with new ideas in management and group dynamics, trying out new innovation concepts, and a little bit of rule breaking. Interest in the work of the team continues to spread across Microsoft, and it has established a Friends of 42Projects email alias for people to stay connected with its progress. Readers can join Friends@42projects.org by going to http:// www.42projects.org/4.html. Julian Birkinshaw (jbirkinshaw@london. edu) is Professor of Strategic and International Management at London Business School and co-founder of MLab. Stuart Crainer (scrainer@london.edu) is editor of Business Strategy Review.
Avatars - 42Projects online

Resources: John Beck and Mitchell Wade, Got Game: How the Gamer Generation is Reshaping Business Forever, Harvard Business School Press, 2004 | Malcolm Gladwell, Blink Penguin, 2006 | Productivity Games Using Games to Improve Quality, Ross Smiths post on Googles Testing Blog (http://googletesting.blogspot.com/2008/06/productivity-gamesusing-games-to.html) | James Surowiecki, The Wisdom of Crowds Anchor, 2005 | Gostick and Christopher, The Levity Effect, John Wiley, 2008 | McDonald, Musson, Smith, The Practical Guide to Defect Prevention (http://www. defectprevention.org) | http://42Projects.org | David Edery and Ethan Mollick, Changing the Game: How Video Games are Transforming the Future of Business, FT Press, October 2008 | Economist, Playing for prot, August 26, 2008

Labnotes | 7

Lessons: How others can learn from Microsoft

Use games to get the work done
The use of games in the business world is long established. Game playing is a key ingredient of Generation Y. By using games often comparatively simple ones the Microsoft team has tapped into the culture of its own employees and provided a motivational level of competition and enjoyment to sometimes mundane tasks. Even a $100 meal card as a prize for a game can concentrate minds in a different way. This is where Theory Y meets Generation Y.

The journey is the destination

Trust is an important business and personal issue. By involving people in thinking about trust, the Microsoft team ignited debate and heightened consciousness about individual behaviour. At the same time, the team has not identied a prescriptive list of the characteristics of change. Change and values are rarely black and white. Indeed, exploring the gray areas are where the real fascination and innovation lies.

Change does not come from the top

Smith is not a senior executive at Microsoft, but he has kickstarted signicant cultural change among his team of 85. He didnt ask for permission. The feeling is that this will snowball. People take a step to improve one thing, and they see that one improvement make a difference or save them time, and they follow up with a bit more, and it just continues to grow. This is an ongoing experiment in the practical application of management innovation techniques. We are learning humble and receptive to feedback as we go. It is a grassroots, organic movement. Robin Moeur, a retired Microsoft director whos acting as a consultant to the team, provides the context: Its important to remember that rather than this being any sort of manifestation of what would be regarded as a conventional approach to change inside an organisation, which suggests by denition that its topdown, this is from Ross, his peer group and entire team taking the initiative. It is not the consequence of the CEO or executive leadership team issuing a mandate or direction. Can it scale beyond 85? Can it be cloned? Can other groups be given some guidance and some of our key learning? We believe that it could be. Its very organic. It has common denominators in it that people are looking for almost regardless of their level in the company, their time at the company or the kind of work that theyre doing. People do want to know that trust exists. They do want to know that they can achieve great things and that theyre going to be supported in doing so. Ross Smith believes that the experiment is a continuing work in progress. Were still experimenting. Were still learning. Every day were learning what works and what doesnt. Our focus is on making the employee experience on our team the greatest we can make it, and from that comes innovation, productivity and employee satisfaction. Management becomes easier because people are motivated. It works at every level. Weve got great, talented people. Now we just get out of the way and build the environment in which they can deliver on their potential.

Volunteers rule
Change may require leadership, but it is a very different brand of leadership to that conventionally used by most corporations. At Microsoft, the 42Projects consortium has an opt-in culture. According to Smith, One of our guiding premises is that were learning, were experimenting, were humble, were open to feedback and this is all opt in. We didnt send a big memo out that says, OK, everybody start trusting each other. So its been very important to retain that theme throughout. We have the rigor of the product development cycle, so its very important that people feel they can choose how frequently or how much or how little they want to contribute because it varies week by week, person by person. In fact, participation is high the majority of the team participates in some form every month.

A cultural revolution is as much in the minds as the actions of employees

The changes discussed are not founded on actions, but rather they are based on encouraging people to think and to think differently. People are constantly thinking about how to do things better or about the deciencies in the way things are done now. This promotes active thinking about how to improve and create forums for people to voice their thoughts. No idea comes fully baked, so an atmosphere that supports gestation is critical to getting the ideas out of peoples heads and implemented.

Inventing tomorrows best practices today

8 | Labnotes

Bankers bulimia
Gary Hamel uncovers the all-too human frailties behind the global nancial meltdown of 2008.
The implosion of Americas investment banking industry is the nal act in a morality play that has put every human vice on lurid display. We now know that America had a nancial system of the bankers, by the bankers, and for the bankers: consumers, shareholders and regulators be damned. The whole tawdry episode has besmirched capitalisms good name. Somehow, the leaders of Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac and AIG, along with their kowtowing subordinates, managed to precipitate the worst nancial crisis in 80 years. Still worse, they stuffed hundreds of millions of dollars into their pockets while they were busy dynamiting the nancial undergirding of Americas economy. So here we are with a nancial system in cardiac arrest; a huge swathe of the banking system that has been effectively nationalised, taxpayers on the hook for a trillion dollar-plus bail-out, a record number of bank failures, the specter of new and draconian nancial regulations, and another body blow to Americas already battered international prestige. How the hell did this happen? Thus far, commentators have focused mostly on the technical factors that triggered the disaster. These include:

Complexity. The new nancial instruments

cooked up by the banks were mindbendingly which made it hard to value those securities, and difcult for the ratings agencies to decipher the real risks.

encouraged many borrowers to take on loans they could never pay off. The lesson for bankers: any nancial instrument that is built atop lies and misrepresentations will be imsy at is core.

Leverage. The biggest buyers of mortgagebacked securities, investment banks and hedge funds, borrowed heavily to bulk up their portfolios. Many seem to have forgot that leverage is always a double-edged sword, and sooner or later cuts both ways.

Hubris. The Wall Street rocket scientists

who where charged with packaging subprime offal into marketable securities dramatically over-estimated their ability to parse and partition risk. Of their own genius, they couldnt distinguish between sophistication and sophistry. Now, to their sorrow, they have learned that distributing risk is not the same thing as eliminating it, particularly when that risk is compounded by nose-bleed leverage.

Illiquidity. Because of their complexity and

novelty, there was no real secondary market for many CDOs, so when things started to go south, it was hard for cash-strapped institutions to reduce their exposures. While all these factors helped to precipitate the subprime crisis, there were darker forces at work as well dangerous human foibles that fuelled the runaway train of risky lending and nancial conjuring. More specically, the crisis was the inevitable product of

Myopia. In creating and pricing all those

brave, new structured products, Wall Streets whiz kids relied on complicated nancial models to estimate potential risks. Yet because the models were based on recent trend data, covering a timeframe when asset values were ratcheting ever higher, they failed to anticipate the possibility of a major slump in asset prices. Another lesson: just because you cant remember the last hundred-year storm doesnt mean another one isnt headed your way.

Easy money. Dirt-cheap money

encouraged US consumers to gorge on debt, dramatically increasing the risk of widespread mortgage defaults.

Securitisation. By bundling mortgages into

collateralised debt obligations and selling those CDOs to third parties, banks were able to move dodgy loans off their books. The result: a serious decline in lending standards as banks competed their way to the bottom, providing mortgage nancing to just about anyone with a pulse.

Deceit. It seems that a good many

mortgage bankers conspired with rsttime borrowers in overstating incomes and understating debts. In addition, deceptive sales tactics and a lack of disclosure

Labnotes | 9

Greed. The lure of multi-million dollar

bonuses turned sober suited bankers into frenzied speculators who happily undermined abandoned common sense in the pursuit of Midas-size annual pay-outs. As in so many bubbles past, greed once again proved to be a tireless cheerleader of human folly.

decade or so, short-sighted bankers scarf down a heaping plateful of suspect debt be it developing country loans, Russian bonds, or mortgage-backed securities and then later regurgitate those assets when economic fundamentals reassert themselves. This time, the bankers have thrown up all over the American economy. We can hope, though, that the current crisis will bring leaders to the fore who have the virtues we have always sought in those who manage our nations nancial institutions: honesty, humility, prudence, foresight, and a keen sense of stewardship. It is these qualities, more than any amount of regulation or recapitalisation that will rebuild the foundations of Americas nancial system. In the meantime, though it may be wise to add a stipulation to whatever bailout plan Washingtons wrangling bureaucrats manage to concoct. Specically, all the bankers who receive public money must agree to have the following eternal truths tattooed on their foreheads:

Denial. By early 2002 or so, it should

have been obvious that the post-2000 run up in house prices was anomalous and unsustainable obvious to anyone, that is, who wasnt in a state of avarice-induced denial. (See the chart below.) As is so often the case with denial, the real problem wasnt that the future was unpredictable, but that it was unpalatable. Unwilling to face facts, everyone nancially vested in the housing boom chose to ignore the inevitable proving once again that you cant have a bubble without a thousand do-it-yourself lobotomies. Bankers seem particularly susceptible to these human weaknesses, and the result has been regular bouts of binge-and-purge. Every

Alchemy doesnt work. What was true for

Isaac Newton all those centuries ago, is true today, you cant turn dross (crappy loans, in this case) into gold (triple A-rated securities), no matter how clever you are.

Things that cant go on forever usually dont. If an extrapolated trend

produces ludicrous results (like million-dollar starter homes), it will soon reverse itself so dont keep betting it wont.

S&P/Case-Shiller Index of US House Prices (January 2000 prices are indexed to 100)

Risks are returns are (always) correlated.

Maybe theres someone out there who can produce a positive alpha year after year, but it probably isnt you, or anyone you know.

Stupidity is contagious. Reect for a

moment on the mad obsession you and your colleagues had with leverage and complexity, and then face up to the fact that youre as vulnerable to silly fads as Japanese schoolgirls. This may not cure bankers bulimia, but its a start. Gary Hamel is the author of The Future of Management and co-founder of MLab. This article rst appeared in the Wall Street Journal.

Inventing tomorrows best practices today

10 | Labnotes

Gore inspiring
W.L.Gore and Associates dees managerial convention and is spectacularly successful. At MLabs Half Moon Bay conference earlier this year, its CEO, Terri Kelly, talked exclusively to Simon Caulkin for LabNotes.
To most managers, the only place an organisation with no bosses, no hierarchy and no predetermined lines of communication could be successful is in your dreams. Wheres the discipline? How does anything get done? Whos in charge? Yet despite disobeying some of managements fundamental laws of gravity, W.L. Gore and Associates is anything but aky a global $2.4bn manufacturing rm thats a world leader in markets ranging from weatherproof fabrics to medical implants, bicycle cables and guitar strings. You might expect it to be a good place to work (an ever-present on the Fortune list), but perhaps not that it would never have recorded a loss in its 50-year history. For current Gore CEO Terri Kelly (one of the few who does have a title), of course, the success is not despite but because of the companys refusal to kowtow to management convention. When Gore took shape in Bill and Vieve Gores basement in 1958, it was on the explicit premise that most big-company management hindered rather than helped the real work (think of Peter sighing, So much of management consists of making it difcult for people to work). Greatly inuenced by Douglas McGregors The Human Side of Enterprise, the Gores wanted to build a company based on commitment and trust that would energise engineers and scientists to do what they like doing best innovating to ll real human needs with products that work. The proof of the pudding is the health of the company today, that just keeps on innovating. While there was much talk at Half Moon Bay about blowing up the CEOs ofce (and some CEOs with it), if Kelly is denitely not in the ring line it is because theres not much of the usual stuff to blow up. For one thing, Gore really does practice distributed leadership. No one is appointed a leader at Gore; leaders emerge when associates and peers judge them as such. Youre only a leader if people follow you, is her succinct line on it. When the previous CEO retired, somewhat to her surprise Kelly emerged as leader-in-chief in a similar way. For another, there is a strong tradition of rebellion against anything smacking of process, standardisation or rulebook. For both these reasons, she sees her role as one of stewardship rather than control nurturing Gores unique culture and spirit to meet the challenges of success and scale as well as changing times. Like Hollender, engineer Kelly (yet another who is happy not to have had a formal business education) is clear that Gores private status has been important
Terri Kelly Gore CEO

in protecting its ability to pursue the long-term interests of all stakeholders

Labnotes | 11

It may look like chaos, but, says Kelly, its held together by a few simple principles and beliefs that have proved their enduring worth.

in deance of the management and accounting textbooks. For example, while as a manufacturer Gore obviously has to be competitive, it doesnt pursue low cost by offshoring, and in fact shows striking disregard for economies of scale in general. One of leaderships most important responsibilities, says Kelly quoting Bill Gore, is to gure out how to divide so that you can multiply, and thats counterintuitive. When units get to around 200 250 people, with very few exceptions, they are divided up. These small plants are usually organised in clusters, with 15 or so sites close enough together to generate knowledge synergies but still small and separate enough to preserve the precious identity. Of course, says Kelly, for an accountant that creates a raft of extra; but for the company as a whole the cost is more than offset by the direct ownership, entrepreneurial spirit and connectedness with both customers and products that the clusters foster. Just as distinctive is the internal structure. Having seen how in most companies formal hierarchical structures form a rigid screen over a network of informal relationships where things actually get done, Bill Gore resolved to get rid of the screen. So Gore thinks of itself as a lattice of interconnected individual nodes rather than a hierarchy. There are no management layers, no organisation chart, and no one has a boss. Instead, associates are encouraged to communicate directly and are accountable to peers in self-organising teams that crystallise around opportunities and leaders who emerge to drive them. It may look like chaos, but, says Kelly, its held together by a few simple principles and beliefs that have proved their enduring worth: the maximisation of individual potential, erce emphasis on product integrity, and the cultivation of an environment where creativity can ourish, all underpinned by the fundamental belief that people can be trusted to do the right thing. Associates commit to fairness, encourage others, make and keep commitments, and consult in cases where Gores reputation is at stake. Not surprisingly, outside hires, who are taken on for broad work areas rather than specic jobs, are apt to react to these conditions with bemusement. Where do they start? They are guided through the crucial rst months by a sponsor (to repeat, not boss) who helps them rst to understand the available opportunities and team objectives and then to commit to projects that match up with their skills and aspirations. Personal fullment and contribution to the company go together. All associates are stockholders, and there is a prot share based on whole enterprise performance, but individual reward, right up to that of the CEO, depends on ranking by peers. Says Kelly: This creates a very different dynamic of folks that really understand the importance of team, understand the values, that rise to the top because theyre making a unique contribution, not by seniority but by their impact which can come in a number of different ways, so that, say an outstandingly effective engineer could be paid more than many leaders. Despite the lack of formal hierarchy, or perhaps because of it, Kelly spends a huge amount of time on leadership issues. Leadership is critical to preserve and build on the ethos that has inspired Gores rst half century and, as at Google, it has to scale to cope with an anticipated doubling in size in the next few years. A lot of very talented leaders have this tendency to want things to be structured and controlled and dened in a nice, neat package, when thats not really the reality, says Kelly. We have to spot and reward leaders who are comfortable in this ambiguous, chaotic and non-controlling environment. Its tough because they really have to start rethinking how they get things done. Some just cant function without saying, I want you to do that, have it on my desk by two They have to have the cultural orientation. If powers important, if egos important, if being the centre of decision-making is important, its not the right company for you.

Inventing tomorrows best practices today

12 | Labnotes

Play hard, work hard

Spending time on social networking sites may be something companies eventually encourage. Julian Birkinshaw examines innovations in the way we socialiseand work.
Do you use Facebook at work? Chances are, youre not allowed to. According to some studies, as many as two-thirds of UK companies have banned employees from on-line social networking during the working day. It is seen as a time-wasting activity, a breeder of gossip, and a security concern. This type of knee-jerk reaction is understandable, because it happens every time new technology enters the workplace. But it is also dead wrong. Consider the ndings of another study of 1000 employees*. More than half the respondents said they were less likely to leave a company that encouraged them to socialise. And those respondents who declared a high commitment to their employers were signicantly more likely to spend time on social activities than those who were scouting around for another job. In other words, there is an important correlation between commitment to a job and social interaction. Now, this is not a stunning new insight work hard, play hard has been the mantra of Silicon Valley start ups for years; Douglas MacGregor wrote about this phenomenon in the 1950s; and William Lever and George Cadbury understood it more than a century ago. But it takes on new meaning in todays workplace. Not only are the media for social interaction changing, we also have a new generation of employees the socalled Generation Y or Millenials with new demands and expectations about what they can expect from a job. So why does the pie grow? Here are three plausible arguments. First, by condoning play at work, you are changing the psychological contract with your employees. The message is: I trust you to do the right thing, and I will evaluate you on your outputs, not on your inputs. Your employees will appreciate the space you give them, and will likely repay your trust with more creative and more thoughtful outputs. This is the essence of Douglas McGregors Theory Y: a management style build on the assumption that people want to do a good job at work. Second, the more your employees engage in social networking at work, the more the boundary between work and home blurs. Some people like to keep the two worlds separate, and usually the more creative or playful part of their personality is hidden at work, only coming out at night or at the weekend. Other people, often working in start-ups or for themselves, are happy to interweave their home and work lives. They bring their whole selves to work, and they put in the effort that is needed to get the job done. Ultimately its a similar outcome to the rst point, but the mechanism is different in the rst case, behaviour is shaped by the personal relationship between the manager and the employee, in the second case behaviour is shaped by the physical and social surroundings in the workplace. Third, the emergence of a new technology typically has far-reaching and unpredictable consequences. No-one guessed that paging technology, originally invented to alert doctors to emergencies, would spawn an entirely new form of social interaction, text-messaging. The value of new technologies emerges over time as users experiment with them and link them

Pies for Ys
Think about what we really mean by work hard, play hard. If your employees take a social networking slice out of their work day, does that mean the value added work slice becomes smaller? Or does it help to grow the size of the pie? The research quoted earlier suggests that the pie grows. If people are allowed to do social things at work, they are likely to engage more fully, and for longer, than those who are not.

Labnotes | 13

with other technologies. Social networking may look like a look like an enjoyable waste of time today, but the chances are it will lead to new applications and inspire new and productive ways of working in the nottoo-distant future.

Putting a U in work
I doubt it is possible to disentangle these three arguments in any practical sense, but collectively they point to the need for a more enlightened point of view on social networking sites and to some interesting changes in the nature of workplace interactions in the years ahead. One company that has taken the potential of social networking very seriously is You at Work, a 70-person start-up based in Canary Wharf, London, that sells exible benets services to large client companies like Nestl, GSK, and Xerox. You at Works business is all about encouraging staff in client rms to make conscious choices about the benets they receive be it childcare vouchers, dental cover, or vocational training schemes. And because the system is entirely on-line, the company has a real interest in guring out how to make computer-based systems more interactive and more valuable in the workplace. In the words of CEO, Bruce Rayner, We realise individuals are spending enormous amounts of their discretionary time forming social and professional networks online using Web 2.0 technologies such as Facebook and You-tube. And we thought, perhaps there is a way to harness some of that energy to increase employee engagement? We believe employees are looking for ways to create an identity, and a sense of belonging in the new work environment that they nd themselves in. Engagement is not something that employers do to employees; rather, what employers can do is create an environment within which employees can freely engage with each other. The employer can then benet because the employees are doing it within Nestl or Coca-Cola. At the end of the day they say Its a great place to work because this is where my colleagues and social associates are. This vision has led Bruce and his team to develop a new offering, Meet at Work, which incorporates their employee benets platform as well as Web 2.0 facilities that enable member interaction and participation. The software allows users to form online social groups, and to interact through instant messaging and discussion forums. They can form professional networks to enable best practice sharing and personal development. And there are features that allow members to review products and services and to trade with one another. So heres the rub. Meet at Work potentially solves one of the problems companies globally are grappling with. It provides Web 2.0 capabilities through a system they can control. But the prejudices and suspicions about gossiping and time-wasting are still there. How can they persuade clients to change their attitudes towards social networking and get full value out of the Meet at Work product? Bruce Rayners approach is pragmatic. We have concluded that the sports/social application is the easiest point of entry it is not threatening, and it is an obvious need in most companies. You at Work has already adopted this application internally, and now it is being offered to client companies. For example, a major high street bank is interested in using it to run ve social societies. But for Bruce this is just the start. Once companies get their heads around encouraging employees to use Meet at Work, the sky is the limit in terms of the applications that can be developed: We think that once employers realise the benets of encouraging online communities they will be less fearful of trying out more adventurous applications. Julian Birkinshaw (jbirkinshaw@london.edu) is co-founder of MLab.

Inventing tomorrows best practices today

14 | Labnotes

No half measures
Whole Foods Market combines prots with principles. CEO, John Mackey, speaking at MLabs Future of Management conference, explains how and why.
Possibly the most important message I want to deliver is the importance for business to discover its deeper purpose. So began John Mackey, CEO of Whole Foods Market (WFM), in his presentation to MLabs Half Moon Bay conference earlier this year. WFM is a retailing phenomenon but at the other end of the spectrum from a Wal-Mart, a purveyor of organic, natural food that is animated not by devotion to shareholder value but (Mackey is not afraid to say it) by the good, the true, the beautiful and the heroic. And although like everyone else it is suffering in the downturn, over the last few years the $7.9 billion rm has been the fastest growing, most protable food retailer in America by percentage of sales. For Mackey, there is absolutely no contradiction between shareholder value and a purpose that explicitly includes and transcends it making the world a better place. He argues that like happiness, prots are best not pursued directly but are a by-product of other things higher purpose, service to customers, developing employees and improving the wellbeing of the community. High prots have to be part of the mission because thats what enables the business to fulll the higher purpose, but I dont think it can be the primary mission. Business, he reasons, is a voluntary activity in which stakeholders co-operate to create value. No stakeholder can be coerced to give of their best against their will and that includes shareholders who legally control the business. So the best way to maximise long-term shareholder value is by managing the interdependent system [so] that all the stakeholders are linked together This is the best strategy to create the most value for customers, the most value for your team members and the most value for the communities, but it is denitely the best strategy to maximise shareholder value as well. health, supporting sustainable farming and improving animal welfare. Among stakeholders, says Mackey, Its simple. We put customers rst because no customers, no business. Having said that, team members have to be empowered because unless they are motivated and in charge, they wont make customers happy either. As with all highly successful rms, its the people who make the difference, and the companys people practices are distinctive to match. We really do treat people as ends in themselves, not means to an end, says Mackey. We pioneered self-managing teams 25 years ago, and its not just words they really are empowered to do their own hiring including leaders. This is important there is a conscious rejection of command-and-control management, and a philosophy that open information generates trust and shared purpose. Salary information is open to all. There is a salary cap, which has gone up over time in an attempt to stop the poaching of top executives by others but the highestpaid executive at WFM takes home just 19 times the pay of the average team member compared to a multiple of more than 400 at the largest US rms.

Legacy light
Mackey neither went to business school nor graduated from university. As he told the conference, this meant that when he set up WFM with his girlfriend in Austin, Texas, in 1978 he had no idea how he was supposed to do it. I had no legacy to overcome, he says. It also meant we had to reinvent the wheel. Sometimes, as in this case, not knowing the rules results in a better wheel. While WFMs purpose and values have evolved over time as times change and new generations of employees bring their own distinctive passions and preoccupations, the central principles remain constant the holistic interdependence of all stakeholders (the corporation as a system), and managing according to a set of core values. Those core values embrace highest product quality, customer delight, team member happiness and excellence, creating wealth through prots and growth, care for community and environment and win-win partnerships with suppliers. Product quality is an essential element in improving

Sharing gains
Most organisations are too concerned with external equity what their CEO is paid relative to other CEOs. Thats the scam Were more concerned about the internal equity within the organisation than we are with the external. In practice this translates into a gainsharing philosophy and stock options for everyone. Mackey is proud that 93 per cent of all WFM options issued have gone to non-executives. WFM has been among the top 100 US businesses to work for 11 years in a row.

Labnotes | 15

Out and about with MLab

Originally, WFM values said nothing about suppliers now, however, a commitment to their success is an explicit part of the philosophy. Suppliers and vendors are partners, and they need to ourish. Our business today would not be successful without our suppliers being successful along with us, so Whole Foods has a different philosophy than say Wal-Mart. This commitment has taken on a new dimension with the Whole Trade Guarantee, a commitment on price, quality, sustainability and fair labour practices with a goal to sell 50 per cent of products sourced in the developing world. WFM donates 1 per cent of sales from Whole Trade Products to its World Planet Foundation, which establishes microcredit programmes in countries where it trades and embodies a care for community that goes beyond CSR. What Whole Foods does when we talk about conscious capitalism is not the same thing as CSR, says Mackey. I see CSR as basically grafting on to an old business paradigm, this idea that you ought to give something back. A more revolutionary way to think about it is to see the community as one of your stakeholders and have responsibility to those communities, not innite responsibility but some, and that, by being public about it, you will inspire your customers, your team members, your investors. The effect of the Whole Planet Foundation has been revolutionary at WFM, one of the most important things weve done for morale ever in our history, says Mackey. He warns more traditionally-minded managers that the next generation of employees are fanatical about greenness and sustainability way ahead of the CEO and woe betide those companies, even Fortune 100 members, that cant tap into such higher purpose. Those that cant, he predicts, are going to fail, ultimately, because this is a competitive advantage perhaps the competitive advantage in the 21st century.

Future MLab events

Engaged Innovation: Strategies for Enhancing Employee Participation in the Innovation Process
Workshop and Symposium, December 9th 2008 MLab at London Business School
How do you create an open and responsive environment for idea development? How do you build an innovation team to select and develop promising ideas? What is the role of electronic and on-line tools in enhancing the quality and quantity of ideas? What are the limitations and risks in using such tools? How do you retain the engagement of employees in your innovation process? These fundamental and practical questions will form the agenda for a one-day workshop and seminar at London Business School. The day will be held in two parts. The rst, by invitation only, will be restricted to a maximum of 20 experienced innovation managers. This will be followed by an open symposium with speakers. Both events will be hosted by Professor Julian Birkinshaw of MLab and London Business School.

Innovation in the Workplace: How Web 2.0 and Generation Y are changing the way management work is done
Conference, January 28th 2009, 2.30pm-6pm MLab at London Business School
Generation Y employees are demanding new ways of working. At the same time, Web 2.0 is enabling the development of new tools and applications that are making such change possible. What impact will Web 2.0 and Generation Y have on innovation in the workplace? This half-day conference will explore the emerging innovation agenda. Speakers will include CEOs and senior executives from companies with highly innovative management models, and from thought leaders who are exploring the potential of these trends for a radically different workplace of the future.

If you would like to know more about these MLab events please contact: Rosie Robertson (rrobertson@london.edu) or Julian Birkinshaw (jbirkinshaw@london.edu)

Find out more about MLabs upcoming events.

Visit the website for regular updates at:

www.managementlab.org

Inventing tomorrows best practices today

The

How to become engaged with MLab

MLab is unique. It brings together some of the worlds leading business thinkers, academics, executives, institutions and organisations. There are a number of ways in which organisations or individuals can become engaged with MLab, says research director Julian Birkinshaw. Founding status is open to corporations and individuals who are passionate about realising MLabs mission. Support through a seed money grant or a gift-in-kind allows us to publicly acknowledge your commitment and provide you access to leading edge management thinking and practice. Participating partners work intimately with MLabs internationally renowned faculty and staff in generating a number of bold management innovations relevant to your organisations goals. If the bottleneck to sustainable competitive advantage is a lack

connection
of management innovation then investing in MLabs unique JAM workshop process help address these issues. MLab also includes research partners. As well as action research with participating partners, MLab undertakes more traditional academic-based research projects around a number of pre-dened challenges directly linked to management practices. These range from how to unleash human capability by making organisations t for human beings through to making innovation everyones job. Sponsorship of a research topic will provide direct access to leading edge management practice in your chosen eld. MLab also involves individual thoughtleaders as partners. If you are an inspired management innovator working in academia or in industry join the debate on Gary Hamels blog at http://discussionleader. hbsp.com/hamel.

Labnotes
Labnotes is published by MLab at London Business School.
Editor Professor Julian Birkinshaw Co-founder and Research Director M +44 (0)7966 908 718 E jbirkinshaw@london.edu

Labnotes enquiries: mlab.enquiries@london.edu

Contact MLab
E inquire@managementlab.org T 1-650-851-2095 Mailing Address: PO Box 620955 Woodside CA 94062 www.managementlab.org
Professor Gary Hamel Co-founder and Executive Director E inquire@managementlab.org

management blog

You can join the discussion with Gary on key topics of management innovation by accessing each blog on the Harvard Business On-line website as follows:
What Does the Future of Management Look Like to You? http://discussionleader.hbsp.com/ hamel/2007/09/what_does_the_future_ of_manage.html#comments Is It Really Possible to Reinvent Management? http://discussionleader.hbsp.com/ hamel/2007/10/is_it_really_possible_to_ reinv_1.html#comments Moving Management On-line Part One http://discussionleader.hbsp.com/ hamel/2007/11/moving_management_ online_part.html#comments Moving Management On-line Part Two http://discussionleader.hbsp.com/ hamel/2007/11/moving_management_ online_part_1.html#comments What is Managements Moonshot http://discussionleader.hbsp.com/ hamel/2007/12/what_is_managements_ moonshot.html#comments Innovation Hacker http://discussionleader.hbsp.com/ hamel/2008/01/innovation_hacker. html#comments

For information about MLabs upcoming events see page 15

or visit the website for regular updates at

www.managementlab.org
Management Lab (MLab) 2008.