1. Crashing With the Nose Up JAMES R. CROW The 5th Annual KM World 2001 Conference and Exposition -- Santa Clara Convention Center, Santa Clara, California October 30 - November 1, 2001 Lift Thrust Drag Gravity

2. Introduction n Knowledge Management Requires Very High levels of Trust and Internal Cooperation n The topics we will discuss undermine trust and teamwork within the organization n Trust and teamwork require an understanding of the organization as a system of interdependent components

3. Topics of Discussion n Just as systems can be designed to promote internal competition they can also be designed to promote internal cooperation and collaboration. n Trust is something that is built over time.

4. What do the following have in Common? u Profit and LossOvertime RejectsRework Cycle TimeTurnover Absenteeism AccidentsWarranty Costs Cash FlowMarket Share Waste

5. What do the following have in Common? n Pay for Performance Systems n Rankings (People, Plants, Shifts) n Reward and Recognition Programs n Performance Appraisals n Contests n Quotas n Management by Objectives n Performance Management Systems

6. n Management, in the belief that these programs drive performance, uses these programs to drive the company forward. What these programs actually do is create winners and losers, are counterproductive to teamwork, destroy trust, create fear, ignore the existence of a system, increase variation in a system and create an adversarial work environment that will make it difficult for any knowledge Management system to be effective. n The organization, driven by management to achieve higher levels of performance, may instead Crash With the Nose Up.

7. n The System is a series of interdependent components that try to work together to achieve the aim of the System. W. Edwards Deming n Optimization is a process of orchestrating the efforts of all components toward achievement of the stated aim. Optimization is managements job. n Sub-optimization is the result of doing things that ignore the existence of a system, and the interdependence of the components.

8. New Idea DesignConsumer AndResearch SuppliersRedesign Customers A BValue Adding ProcessesMarkets Production, Assembly, Inspection, Distribution CIndustry DTechnology The Organization as a System

9. n We are all victim's of What We Know n Closely Held Beliefs n Affect Systems Design n Affects Individual and Group Behavior n Systems Drive Behavior

10. Performance Appraisal n Our Expectations n Reward exceptional performers n Identify poor performers n Determine pay rates n Enhance the communication process n Career planning n Feedback on job performance n Build Relationships n Create documentation n Motivate employees n Solve most - if not all of your employee relations problems.

11. The performance appraisal process is a cart that is asked to carry too heavy a load. Peter Scholtes

12. How the Performance Appraisal results in sub-optimization of the system n Acts as a barrier the the communication process n Reinforces the boss/subordinate relationship n Counterproductive to driving out fear n Helps to establish an internally competitive system n Takes away from the focus on the customer n Requires tremendous time and resources to develop and administer n Ignores the interdependence of the components within the system n Tends to be subjective instead of an objective measure of performance u Measures most recent performance u People similar to the appraiser tend to receive higher appraisals

13. n A study done at a large GE plant showed the performance appraisals had no positive impact on the organization.

14. Work Planning and Review n More frequent discussions of performance n No summary judgments or ratings n Salary action discussions held separately n Mutual goal planning and problem- solving n A joint process with shared responsibilities

15. One Year Study Significant improvement in the following n Amount of assistance in improving performance n Degree to which manager was receptive to new ideas n Ability of manager to plan n Extent to which manager made use of employees abilities n Correct career development goals n Increase in number of performance discussions

16. Pay for Performance n Theory: Good performance should be rewarded, bad performance punished. Money is a motivator. Tying pay to performance is a way to enhance the performance of individuals n Reality: Money is not a motivator. Money is at best a satisfier.

17. What is outstanding performance? Quarter Name 1 2 3 4TotalRank Ken810129395 Barbara64117281 Lenny1111118416 Noboru811811384 Cathy155124362 Steve59910332 Defects per worker for the year

18. What is outstanding performance 55Upper Control Limit = 51.79 50 45 40Average 35.83 35 30 25 20 15Lower Control Limit = 19.97 1039 28 41 3836 33 05 KenBarbara Lenny NaboruCathy Steve

19. Business Week, September 4, 1994 n Eleven of thirteen school districts drop pay for performance plans. This sounded like a good idea but any performance gains were more than off set by charges of unfair treatment and conflict between teachers.

20. Despite the evident popularity of this practice, the problems with individual merit pay are numerous and well documented. It has been shown to undermine teamwork, encourage employees to focus on the short term, and lead people to link compensation to political skills and ingratiating personalities rather than to performance. Indeed, these are among the reasons why W. Edwards Deming and other quality experts have argued strongly against using such schemes. Jeffrey Pfeffer, SIX DANGEROUS MYTHS ABOUT PAY, Harvard Business Review, May-June 1998

21. Six Dangerous Myths About Pay n Labor rates and labor costs are the same thing n You can lower your labor costs by cutting labor rates n Labor costs constitute a significant proportion of total costs n Low labor costs are a potent and sustainable competitive weapon n Individual incentive pay improves performance Most merit-pay systems share two attributes: they absorb vast amounts of management time and make everybody unhappy. n People work for money

22. The Role of Money Money should enable you to hire and retain the workforce you need to run a successful organization.

23. Reward and Recognition Programs Theory: People will work harder to receive recognition and be rewarded for their efforts. Reality: Programs have little if any impact on performance, and create a win/lose working environment.

24. Reward and Recognition Programs n Sub-optimize the system in the following ways: n Costly and time consuming to develop and administer n Always more losers than winners n Takes away from customer focus n Selection process can cause conflict within the group n Any positive impact on performance is short- lived.

25. Contests/Competitions/Rankings/ Incentives n Theory: Since our economy is based on competition and we can see the benefits of competition all around us, we will benefit as an organization by making competition the way we do business internally also n Reality: Creates winners and losers, and there will always be more losers than winners n Ignores the existence of a system and the interdependence of the components within the system n Counterproductive to Teamwork, destroys teamwork n Takes away from customer focus

26. The question, then is, how do you produce internal commitment? One thing for sure is that the incentive programs executives have used - higher compensation, better career paths, employee of the month, recognition awards, simply do not work. On the contrary, in all my years as a change consultant, I have repeatedly witnessed how offering employees the right rewards creates dependency rather than empowerment. Inevitably, the power of such methods wears off with use, and all that has been created is more external commitment. Chris Argyris, Empowerment: The Emperors New Clothes, Harvard Business Review, May-June 1998

27. Quotas Theory: To achieve increases in sales, production, quality, etc., we must set quotas. People will strive to achieve these quotas and our sales, productivity, quality will increase. Without a quota no one will sell/ produce anything.

28. Quotas Reality: Quotas limit performance and contribute to sub-optimization of the system. n Sales tend to peak at the end of the month, quarter, year n Sales reps tend to limit their sales to the quota or only slightly above. n Sales reps sometimes hold orders as a cushiontowards next months sales. n Creates winners and losers through competition between sales reps.

29. Management by Objectives/MBO Under pressure from management to hit the numbers Bausch & Lombs executives got creative. Hong Kong Allegedly inflated revenues by faking sales of Ray- Ban sunglasses to real customers. The glasses were allegedly then sold at cut-rate prices to gray-market dealers Miami By accepting cash payments and third-party checks, a Miami warehouse may have indirectly helped launder drug money until mid 1990. Senior managers tolerated the lucrative trade, say former executives.

30. Contact Lenses Contact lens managers shipped products that doctors never ordered and forced distributors to take up to two years of unwanted inventory. Blind Ambition, Business Week, October 23, 1995

31. If management by the numbers worked, the former Soviet Union would have been a success.

32. CommitmentControl TeamworkCompetition Win-WinWin-Lose Open/SharedSecretive/Closed Information Working TogetherWorking for Self TrustingSuspicious TrustworthyUntrustworthy CollaborationUs VS. Them

33. Can There be too Much Competition n Competition Undermines Cooperation and Trust n Excessive Competition Undermines Quality Decision Making n Too Much Competition Promotes Anti- Social Behaviors n Competition Leads to Under-Investment in Training and Development Bruce Kaufman, HR Atlanta April 1999

34. Moving From Competition to Cooperation n Rule One: Stop doing things that result in sub- optimization of the system. Move from win-lose to win-win. The objective must always be for the organization to win, not the component parts.

35. Move From Control to Development n Rule Two: n Develop an Understanding of Demings System of Profound Knowledge n The organization as a system n Theory of Knowledge n Knowledge of variation n Psychology

36. A System of Profound Knowledge Appreciation for aKnowledge about System Variation Theory ofUnderstanding of Knowledge Psychology

37. The Organization as a System n The System must have and Aim, without an Aim there is no System n The System must be Managed n Management of the System Requires Knowledge of the Various Components and how they interact n The Secret is cooperation of the components toward the achievement of the stated aim n Must move Thinking from Vertical to Horizontal

38. Knowledge of Variation n Common Cause (Random) Variation

39. Knowledge of Variation n Special Cause Variation

40. Two Mistakes 1. To react to an outcome as if it came from a special cause, when actually it came from a common cause of variation 2. To treat an outcome as if it came from a common cause of variation, when it actually came from a special cause

41. Theory of Knowledge n Management is Prediction n Knowledge is built on Theory n The use of data requires Prediction n Need for Operational Definitions n Information is not Knowledge

42. Seven Rules for the Theory of Knowledge 1. Any plan requires prediction 2. There is no knowledge without theory 3. There is no prediction without knowledge 4. Experience teaches nothing without the aid of theory 5. Operational definitions put communicable meanings into a concept 6. A single counter example destroys a theory 7. There is no absolute value to anything

43. Psychology n Intrinsic Motivation n Extrinsic Motivation n Overjustification

44. Motivation n Motivating people n Creating a working environment that enables the intrinsic motivation within people to come out

45. Motivating Forces in a Work Environment n Clearly defined goals n Feedback n Teamwork n Challenge n Competition

46. Dissatisfying Forces in a Work Environment n Not enough time n Poor Communications n Last minute changes n Improper or lack of training n Incomplete Information n Poor planning n Poor working conditions n Lack of experienced personnel n Defective or inadequate equipment

47. The Role of Management n Look at your organization - Do you have dissatisfiers holding you back? n Look for ways to integrate the Motivating forces into your working environment.

48. n Management must spend most of its time developing an understanding of systems and whole systems thinking. This includes an understanding of the interdependence of the components within the system and with larger systems. n Management must move its thinking from individuals to systems and processes. Develop people - manage processes.

49. n The purpose of organizations is to enable common men to do uncommon things. n Management cannot rely on genius. Genius is in short supply and is unreliable. Peter Drucker