Monthly Archives: February 2012

Where Are Your Energy Drains?

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You can't mask underlying energy losses for long. You've got to eliminate them instead.

According to the laws of physics, your success is determined by how you manage energy – and there’s a universal success formula to prove it. Quite simply: success is a function of integration over entropy. Your goal is always to have high integration and low entropy. In “How to Choose the Right Strategy“, I explained how to create high integration in your company. What gets too little attention in business, however, is the havoc that high entropy plays on a system. It truly is the ultimate killer. Or as physicists Sir Arthur Eddington aptly put it in the early 20th century, “The law that entropy always increases holds, I think, the supreme position among the laws of Nature. If someone points out to you that your pet theory of the universe is in disagreement with Maxwell’s equations — then so much the worse for Maxwell’s equations. If it is found to be contradicted by observation — well, these experimentalists do bungle things sometimes. But if your theory is found to be against the second law of thermodynamics I can give you no hope; there is nothing for it but to collapse in deepest humiliation.”

So if there’s anything you should be doing in your business that you’re probably not focused enough on, it’s cultivating an awareness of entropy and a commitment to reducing it. Personally, I didn’t appreciate the significance of entropy in my own business until I ran into it. Hard.

In 1998, at the age of 28, I co-founded an affiliate marketing company in Minnesota and moved it to Santa Barbara, California. By 2001, the company was soaring like a rocket, generating incredible growth rates (much easier to do for a small company than a large one but it’s still a very exciting time), and was adding staff and customers as fast as we could to scale. During this period, everyone who associated with the company, from the staff to the customers and even people on the street, seemed genuinely blown away by its energetic, passionate, and committed culture.

As co-founder and CEO, I would often walk into the office and feel lifted two feet off the floor by the collective energy and enthusiasm of the group. I had installed a giant train whistle on the wall that the sales team would blow every time there was a sale. While the bankers on the second floor weren’t too happy with the frequent “blassssssssssssssssstttttttttttttttttt” of the whistle, we would all cheer loudly. It was a heady and intoxicating time.

Most of us had a feeling that the company had a growing opportunity in front of it and that we had the capabilities to execute on it. It was also relatively easy to make and implement decisions and there was a lot of momentum overall. That all seemed to change in a heartbeat.

During that heady period, I made the decision to hire a professional management team to supplement my own inexperience. “We’re growing really fast and we need experienced hands to help us navigate,” I said. But within two weeks of hiring the “pros,” I walked on that same office floor and, rather than feeling uplifted, I felt a crushing weight. Rather than excitement, momentum, and progress, there was a palpable sense of fear, finger-pointing, and in-fighting in the air. The new leadership had assumed a top-down approach of closed-door decision making that quickly eroded the culture we had worked hard to build.

That extraordinary climate I thought we were building had quickly became a cesspool and all the momentum was gone. The friction within the system had become so high that the ability to maintain the system, make decisions, and get work done became very low. I was dumbfounded, confused, and afraid. “What is going on and how do I fix it?”, I asked myself. I didn’t know it then but I had run up against the classic laws of physics. I did understand, however, that if I didn’t fix it fast, my company was going to fail.

Thankfully, this mini-crisis was a wake-up call. Through a series of steps and some outstanding guidance, I was able to realign the organization, reduce the internal entropy, and accelerate its performance. Today, the company is the world’s largest affiliate marketing company, CJ.com. If we hadn’t dealt with the growing entropy, it would have been just another startup failure.

“Sniff” Out the Drains

In business and in life, ignore energy drains at your peril.

Now that you’re aware of the principles of success, make it a habit to regularly sniff out and eliminate energy drains in your life and work. Energy drains are a symptom of entropy. Energy gains are a symptom of integration. Your goal is to keep the gains high and the drains low.

Energy flows from inside out so begin with you. How’s your physical, mental and emotional health? Any energy drains? If so, what is causing them and how can you address them? Then move outward to your primary love relationship and key family relationships. How are they? Is there friction or flow? If there’s friction, what is causing it and how might you help to address it? Keep moving outward and look at your company. Where does energy seem to be flowing and where are the energy drains occurring? You do this by walking around observing, asking questions, and listening. When you notice signs of unhealthy entropy, take note. Flow is good. Excessive friction is bad. Remember: your company has a fixed amount of energy and whenever there’s a real drain, it’s stealing from your top-line performance.

For example, you may notice that there seem to be good flow and momentum in the sales process. You can tell because you have satisfied, paying clients who come back and buy more of your product or service. The sales team is motivated and working well together. At the same time, you might notice significant friction and energy drains within engineering. What’s causing this? Is it the people? The process? The structure? A misalignment in vision and values? Whatever the cause, if you want to increase execution speed, you’ll first need to address the drains.

Sometimes energy drains are so significant that they can seem impossible to handle. Maybe the friction with your board is so extreme that trying to address it seems more costly than putting up with it. Or perhaps you’ve lost trust and respect with your co-founder. How do you deal with something that, if it goes badly, could bankrupt the whole company?

Obviously life and work are complicated and each situation is unique. I’m not going to insult your intelligence by telling you that there’s a simple, magical, three-step formula to eliminate every major drain. But change always begins with a shift in perspective. And it’s that greater perspective of the real cost of energy drains and their adverse impact on the system that I’d like you to cultivate. Once you begin to view problems and conflicts as energy drains, you’ll be able to find energy-gaining solutions much more easily.

How you deal with energy drains and maximize top-line integration is the art and science of Organizational Physics. As you study and apply the these principles to your life, work, and relationships, your ability to solve even the most complicated challenges gets better and better. For now, just remember that if you want greater top-line performance, you’ll need to start by identifying the energy drains standing in the way.

Back to The Success Guide.

Next to How to Scale Your Company (and have fun doing it).

The Universal Success Formula

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If you want to understand how something really works, don't focus on the parts, look at the system as a whole.

If you want to understand how something really works and what makes it successful, it’s not enough to break it down into its individual components. Instead, you need to look at how it operates as a system. By definition, a system is a series of interacting, interrelated, or interdependent elements forming a complex whole. And there’s absolutely nothing you can think of that is not a system. For example, you’re a system (specifically, a complex adaptive or living system). You have a body, which is a physical system comprised of other systems (immune, circulatory, digestive, etc.). If we were to look closely at any one of these, we’d see that they’re comprised of even smaller systems. And of course, your physical system is also an element in a larger system. You have a mental and an emotional system; you’re part of a family system, a community system, an economic system, a government system, an ecological and planetary system, and so on. Everything is a system.

When it comes to the study of what makes something successful, what we’re really asking is what causes a complex adaptive system to fail or succeed. Success simply means that the system (e.g., you, your family, your company, or whatever you choose to identify as the system) attains a desired goal. Failure means it does not. Winning the Super Bowl…being happy…earning a billion dollars – as long as you can measure it quantitatively or qualitatively, it’s a valid definition of success. And because everything, large or small, is a system, we can use the same universal principles to understand if it’s likely to fail or succeed. That’s pretty cool.

What actually does cause any system to fail or succeed? The answer is System Energy Management. This means just what it sounds like: System Energy Management defines how energy behaves within a system.

The Universal Success Formula

Entropy. It's a bitch.

Two laws of physics dictate how energy is used within a system. They’re called the first and second law of thermodynamics. Engineers use the laws of thermodynamics to design everything from buildings and bridges to microchips and spaceships. We can also use these same laws to understand how energy behaves within an organization.

The first law of thermodynamics is called “Conservation”. It tells us that, at any given point in time, the potential energy available to a system is finite. Whether we’re referring to your family or your business, this has a finite amount of potential energy available to it. In order to get new energy, the system must acquire it from the surrounding environment — just like you must get food from the refrigerator or your business must get sales from its customers.

The second law of thermodynamics is called “Entropy”. It tells us that every system falls apart over time. No matter how hard we try, there’s no escaping the irresistible force of entropy. You, me, and everything in the universe are ultimately falling apart over time due to entropy. Aging, disintegration, deterioration, and disorder are all synonyms for entropy. It is constantly eating away at a system from the inside.

To understand how the laws of thermodynamics fit into organizational theory, then, just remember that every system has a finite amount of potential energy and every system is falling apart over time. Simple. (If you’d like to learn more about the underlying physics involved in success, you can read more at the end of this post). Now that you know these two laws, you can begin to use them to understand if your organization or any other system in the universe (including you, your family, your community, your company, and your favorite sports team) is likely to fail or succeed. You do that by understanding the universal success formula:1

The Universal Success Formula explains why any system in the universe will fail or succeed.

The universal success formula shows that success is just a function of two things: integration over entropy. Let’s define the terms and then explain how this works. As you already know, success is any goal you desire to attain: making a lot of money, falling in love, being fit and healthy, raising a family, growing your business, or even winning the Super Bowl. It doesn’t matter how you define it.

Integration is a measure of how much energy the system is getting from its environment. Energy in this case is anything useful and desirable that can be made productive in the pursuit of success (e.g. money, resources, clout, etc.). High integration is good. Low integration is bad. Why? Because when there’s high integration between a system and its environment, the system has aligned its capabilities with opportunities and is extracting available energy. It can use this energy to be successful. If there’s no integration, then there’s no new energy available to the system and it will fail. To learn more about integration, capabilities, and opportunities, read The Goal of Any Strategy.

Entropy in the formula indicates the amount of energy required to maintain the system, make decisions, and get work done. Low entropy is good. High entropy is bad. Why? We know from the first law of thermodynamics that, at any given point in time, the potential amount of energy available to a system is finite. We also know from the second law of thermodynamics that the force of entropy is constantly eating away at a system. And here’s where it gets profound: The energy available to a system must always flow first to manage its entropy needs. Only after those needs are met, and if any energy if left over, it will be made available for integration. Therefore, the higher the level of entropy, the lower the level of success. And if entropy gets too high, the system will perish and fail.

If entropy is high, integration will be low. This is bad.

Be Aware of Entropy in the System

The fact that available energy first flows to manage a system’s internal entropy needs is a universal law – it applies to all systems, big or small. Let’s take a look at some everyday examples to see how prevalent this law is in your everyday experience.

Your friend in the hospital has an entropy problem.

Imagine you go to visit a friend in the hospital who is recovering from cancer. Cancer – or any physical ailment – is really an entropy problem! Your friend is a system with a fixed amount of available energy. The energy use must first flow within the system so it can maintain itself. Because your friend is sick, he needs most of his available energy to heal. When you visit your friend at the hospital, the doctors will ask you to limit your visitation time. They intuitively recognize that your friend needs to conserve as much energy as possible to heal. He has very little left over to engage in conversation (integration) with you.

Similarly, if you’ve ever had a bad back, you know how hard it is to work at your usual level of productivity, creativity, and effectiveness. This is yet another entropy problem! Entropy is the reason we say “health is the most important thing” and “if you lose your health, you lose everything.” Energy flows from inside a system outward. If your health goes, the entropic requirements of your system make it very hard for you to be successful out in the world.

When you hire, be aware of the entropy increase (or decrease) in the system.

Sports is a great landscape to view the dynamic between integration and entropy. Let’s take the example of Randy Moss, the National Football League (NFL) receiver. He’s famous for his world-class capabilities (running fast, leaping high, and catching a football) and there’s an opportunity to apply those capabilities in the NFL. However, Randy is also infamous for increasing entropy in the locker room. Coaches often call it shifting a locker room from “we” focused to “me” focused. If you were a GM or a coach, you would weigh your desire to have Randy on your team based upon how you view the increase in team capability over a potential increase in team entropy. And be warned, if the entropy gets high enough, you’re not going to be successful no matter how good the skills of your individual players are.

A person's mental/emotional system is also subject to entropy.

Imagine a family going through a divorce. The family system is succumbing to entropy so its members will have less energy available to be effective both within the family and out in the world. The kids aren’t has successful at school because the lack of harmony costs them more energy to manage their own internal mental and emotional states. The parents put on a smile at work but, in the back of their minds, the divorce weighs heavily and thus lowers their productivity. The energy drains will continue until the family members make peace and accept the new reality (or, by some other means, recapture the energy now being lost to entropy).

If you’ve ever felt hurt, angry, or betrayed in your work (and who hasn’t), then you know that these emotions leave you with less energy, zeal, and awareness to bring to your job. Yet another entropy problem! Your mental and emotional states are systems that are subjected to the laws of thermodynamics. When your mind and emotions are sucking energy, the system needs more energy to maintain itself and there will be less energy available for you to be engaged and productive.

Imagine a company with a growing opportunity in the marketplace and with the unique capabilities to exploit it but whose co-founders are at each other’s throats. There’s mistrust and a lack of respect that impact how sales, marketing, finance, and technology plan, communicate, and work together. This is an entropy problem. It costs too much energy to maintain the system against this onslaught and the company won’t be able to marshal its resources effectively to capture the opportunity. Unless the current energy drains can be freed up, the company will succumb to entropy and perish (specifically, the company loses its ability to integrate – i.e. make sales, meet customer needs, and adapt to changing conditions in the market – because the internal friction is too high).

High unemployment creates high entropy in the economic system.

As I write this, the U.S. economy is near 10% unemployment in most areas, the highest it’s been since the great depression. Can the U.S. government craft policies to get people back to work in quality jobs? Clearly, the government has capabilities to legislate, tax, and use force. There are opportunities in the country for government to be of service: job programs, healthcare programs, defense programs, education programs, etc. However, the political climate is also rife with entropy. There’s a lot of politicking, finger pointing, positioning for sound bites, right versus left, etc. There don’t seem to be a lot of thoughtful, considerate, long-term policy decisions or a vision to improve integration of the country. Unless there’s a decrease in entropy within the political system, or unless the entropy gets so great that the system collapses on itself, you can expect more of the same.

Climate change is a massive entropy problem.

It’s also revealing to look at global issues through the lens of integration and entropy. Climate change is an entropy problem. The science indicates that man-made carbon emissions are increasing and climate change is occurring. But if you are a climate change skeptic, then you view economic integration as paramount and will argue that any increase in entropy within the biosphere (e.g. rising sea levels, ocean acidification, loss of habitat, etc.) either isn’t caused by humans, can’t be helped, or won’t cause a serious impact when compared to the increased efficiency on the economy. But if you recognize the reality of climate change, then you likely view limiting the entropy caused by carbon emissions as the world’s top priority. You recognize that if the biosphere goes, all of humanity goes with it and that any economic integration should be in service to the whole, not the other way around.

The Key to a Thriving Business

Now that you’re familiar with some signs of entropy in everyday life, you’ll be able to better understand its negative impact on your business. For example, imagine that your company has 100 arbitrary points of energy and that 50 of them are needed to maintain the system, make decisions, and get work done. This would leave 50 points available to do integration – in other words, to find opportunities, build your capabilities, make sales, and so on. In this case, be wary. Ignore entropy at your peril.

Now imagine that you’re able to decrease your internal energy needs by half, to 25 points. That leaves 75 points available for integration. This is a 300% improvement in your top-line performance. You now have that much more energy to integrate new opportunities, develop new capabilities, make sales, etc. This is awesome.

One question I’m often asked about the application of the laws of thermodynamics to business in this: “Is my company’s available energy really fixed? Can’t I go out and raise more capital, get a new sale, complete a merger or acquisition, etc. and thus increase my available energy?” The answer is yes, you can – and only as long as the amount of energy needed to keep entropy in check is less than the amount of new energy you can get from the environment. There’s an old adage in business that says: “I’ve never seen a problem big enough that another sale can’s solve!” This is true as long as the revenue from sales is more than the expenses the business must bear. Your goal isn’t to eliminate entropy completely (you can’t). Your goal is to keep integration higher than entropy. The bigger the spread, the more potential for success your business has.

Keep in mind that when an organization has a high amount of internal entropy but temporarily gets more energy through sales, raising capital, or acquiring another company, this usually only compounds the underlying problems. If you’ve ever been part of a bad merger or acquisition, you’ll know what I mean. Trying to bypass internal entropy needs is like trying to cure an illness by masking the symptoms with medication. Yes, it can feel better – but if the underlying condition is still there, you’ve got a bigger lingering problem destroying the system from within. For example, when you’re tired (entropy) at work, you go and get a cup of coffee. This is a temporary stimulant to get you through the day. However, if you keep going for coffee again and again, the internal entropy needs are simply being masked, not solved. Ultimately, the acidity eats away at your health and your doctor recommends you quit the coffee, take up herbal tea, and get more rest and exercise to better manage your stress. Similarly, if you can solve the underlying conditions that are causing entropy to increase in your business, you’ll roll more energy to the bottom line and have a stronger, more resilient, and high-performing organization.

Life Can Be Hard But It’s Still Pretty Awesome

We each have a finite amount of time and energy to perform integration within our lives, to understand ourselves and others, and to experience the fullness that life has to offer. The inexorable pull of entropy, dissolution, and ultimately death is always present in the background. Even so, we are evolving beings with an impulse to create, integrate, and thrive. When we manage the dynamic between entropy and integration with awareness and the right balance – that’s when we meet our potential to be successful beyond expectation.

Back to the The Physics of Success & Happiness Guide.

Next to Where Are Your Energy Drains?

About the Physics

For those of you who are interested in (or perhaps questioning) how the laws of thermodynamics actually dictate the success or failure of complex adaptive systems, I’m including more detail below.

Entropy in Open vs. Closed Systems

In physics, there are two basic classifications of systems, closed and open. A closed system is one that can exchange energy (heat and work), but not matter, with its surroundings, while an “open” system exchanges matter and energy with its surroundings. In the 1800s, when the word “thermodynamics” was first coined, it was thought that the laws of thermodynamics only applied to closed or isolated systems.

We now know that no system is really closed or isolated (other than the summation of all systems that we call the universe or multiverse). This is because energy and matter are really the same thing and with any attempt to define matter as a particle, we find that it resembles a wave or a new definition of matter such as quark–gluon plasma. Notice, too, that the more you try to define where one system begins and the other ends, the less you’ll be able to identify a boundary. It’s as if someone asked you to measure the coastline of California. How long is it? Well, the more closely you attempt to measure it, the longer it gets. Not only is everything a system, but everything is an open system in interaction with the rest. Even a vacuum in space is teeming with energy and information and in open exchange with other systems.

As it turns out, how we apply the laws of thermodynamics (energy first flows to manage internal needs and only what’s left can be used for integration) applies well to organizations of any size and is equally valid for all systems, closed and open.

The founder of General Systems Theory, Bertrand von Bertanlanffy, wrote about the contrast of entropy between open and closed systems, explaining that, “…on the basis of the theory of open systems, the apparent contradiction between entropy and evolution disappears. In all irreversible processes, entropy must increase. Therefore, the change of entropy in closed systems is always positive; order is continually destroyed. In open systems, however, we have not only production of entropy due to irreversible processes, but also import of entropy which may well be negative. This is the case in the living organism which imports complex molecules high in free energy. Thus, living systems, maintaining themselves in a steady state, can avoid the increase of entropy, and may even develop towards states of increased order and organization.”2

At the same time, Von Bertanlanffy recognized that, beyond the dynamic between entropy and integration (“… the violent contradiction between Lord Kelvin’s degradation and Darwin’s evolution, between the law of dissipation in physics and the law of evolution in biology”), according to the second principle of thermodynamics, the general trend of events in physical nature is towards states of maximum disorder and leveling down of differences, with the […] heat death of the universe as the final outlook, when all energy is degraded into evenly distributed heat of low temperature, and the world process comes to a stop.”3

What is “Energy?”

In classic physics, energy represents the ability to do work or to exert pulls or pushes on a physical object against the basic forces of nature like gravity and along a path of a certain length. In Organizational Physics, “energy” means any source of usable power. This includes not only the ability to exert a change on a physical object but also on an entire organization. It also includes energy equivalents such as money, resources, and clout. “Money” is really just a form of stored value or energy. It’s used to make the exchange of products and services (other forms of stored energy) more efficient. “Resources” includes power sources that the organization has available to itself, including the stored energy potential of the people, materials, natural resources, know-how, and capital equipment involved. “Clout” is the influence and good will that the organization has built up over time. From a business and personal perspective, if you think of energy as anything useful and desirable that can be made productive in the pursuit of success, you have a good working definition.

1. A similar success model, of which this model represents a development, was first taught to me by Dr. Ichak Adizes of The Adizes Institute. Adizes argued that success is a function of “External Marketing” over “Internal Marketing.” See Ichak Adizes, Mastering Change: The Power of Mutual Trust and Respect (Santa Barbara: Adizes Institute Publishing, 1992) and Managing Corporate Lifecycles (Santa Barbara: Adizes Institute Publishing, 2004).

2. Ludwig von Bertalanffy, General Systems Theory, Braziller, 2003.

3. Ibid.

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The Misaligned Organization and What to Do About It

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In 1993 I was a college student in St. Paul, Minnesota. I drove a twenty-year-old canary yellow Toyota Corolla with bald tires, a broken heater, and a misaligned chassis. Because my spending priorities then were the necessities of college life (pizza, beer, girls, and rent), I never invested in making the car safe to drive.

Navigating that car on the icy roads of thirty-below Minnesota winters required a certain ability to go with the flow. But eventually, my refusal to to replace the tires and align the chassis caught up with me. Driving late one winter night … it’s easy to guess what happened. Wipe out. Crash. Car totaled.

Thankfully, no one was hurt.

I share this story because it’s easy to tell when a car is misaligned. The car squeaks, there’s friction and a loss of power, and it’s difficult to steer where you want to go. Similarly, if you know what to look for, it’s easy to tell when your business is misaligned. If you act early on, you can avoid a crash and even improve performance fast.

What It Means to Have an Aligned Organization

Well after I had sold that old Toyota, I received some more equally important lessons on the value of organizational alignment. In my late twenties to mid-thirties, I personally led two companies into compound annual growth rates (CAGR) exceeding 5,0000% per year. From startup to $4M and $12M in two and four years respectively. While this may be chump change to some entrepreneurs, these periods of rapid growth were priceless learning for me. They also provide a valuable lesson that’s applicable to companies of all sizes and at all lifecycle stages.

The surprising thing is that, in order to get that kind of exponential growth, I didn’t have to fight, cajole, or struggle for years. Instead, the leadership team and I created the right internal and external alignment for growth to occur. Because we got the alignment right, the businesses executed extremely fast. The same lesson holds true for you. If you can get the internal and external alignment right for your business, you’ll dramatically increase its probability of thriving and executing very quickly. I’m not guaranteeing 5,000% CAGR. In fact, I’m not even recommending you try for that — it’s much wiser to shoot for more sustainable rates of growth. But the act of creating alignment is essential to every business. Get it right and your company can execute swiftly and powerfully. Get it wrong and you won’t get back on the growth curve until you do get it right. Alignment is the key.

At the most basic level, “external alignment” means that the company’s unique capabilities are well integrated with growing market opportunities. Basically, the company is in the right place, at the right time, with the right set of capabilities, and “pulled” forward by growing market demand. “Internal alignment” means that the collective organizational mass is headed in the right direction and there’s little internal friction stopping the work from getting done. If external alignment is the train engine that powers growth, then internal alignment are the passenger cars being pulled forward. Your goal is to have a powerful engine with smoothly running cars.

When all of the elements of external and internal alignment come together, you’re going to have a very high probability of catching a fantastic growth wave. Intuitively, this should make a lot of sense. Envision a company with the right strategy and business model for the current market conditions. The core team shares the same vision and values. They all want to end up in the same destination and have the same boundaries on what is and isn’t acceptable behavior. There’s a structure in place that assigns authority and accountability for the work that needs to get done. The team has a sound process to consistently make good decisions and implement them fast. And talented, passionate people are flocking to the organization because they sense an opportunity and are intrinsically motivated by the work that needs to be done. If you had all these things, how could you not be successful?

The Early Signs of Misalignment

Unlike a cheap car, you can’t afford to crash your business into a wall. Don’t wait to realign your company once sales are falling and the market has shifted. You want to be well ahead of that curve. If you’re wise, you’ll pay attention to the early signs of misalignment, and take action immediately to address them. You’ll recognize when it’s time to realign the organization when the company isn’t executing as fast as it needs to. Symptoms may include:

  • The Founder’s Trap – the company can’t seem to scale beyond the founder, resulting in a bottleneck to growth and execution
  • Incomplete priorities – the company can’t say “no” to various opportunities and therefore isn’t committed to a clear and purposeful strategy
  • Amnesia – the company seems to have forgotten what it really is and why it’s really in business
  • Internal friction – the company takes too much energy and effort to make simple decisions and get work done
  • Cash crunch – the company has sales but no profits
  • Loss of innovation – the company no longer innovates but acquires growth by buying other companies
  • Poor team performance – the team isn’t stepping up to the size of the opportunity

How to Align Your Organization

Aligning your organization isn’t something you draw up in isolation and then announce to the team. The greatest plan in the world is only as good at the team-wide commitment to implementing it. You’ll need to follow all the steps of a sound decision-making and implementation process and involve those with authority, power, and influence in the alignment process itself. This usually amounts to you and your core leadership team (5 to 15 people on average) going through the process together. Here’s the 6-Phase process I’ve found most effective in aligning organizations for improved performance. In my experience, depending on the size and complexity of the business, it takes anywhere from one to three months to complete Phases 1 to 5, and double that time to fully integrate those changes in the culture and optimize performance in Phase 6.

Phase 1: Aligning the Strategy

The main thing to keep in mind when it comes to aligning or realigning the organization is that, no matter how bad things may be in the current environment, the organization will still naturally resist any change. So your first step is always to unfreeze, unlock, or drain away any resistance to change. My favorite method for doing this is to get the leadership team off site for 1.5 days and, as part of a strategy session, take a holistic view of the organization. We look at where it currently is on its strategic roadmap, as well as any sources of entropy (friction and potential improvement areas) impacting execution. With a shared recognition of what’s really happening versus what should be happening, the leadership team gets on the same page and commits to finding solutions. The desired outcome from the strategy session is group clarity and commitment to the chosen growth strategy; shared recognition of the 3-5 key burning balls or obstacles and an action plan to address them; greater appreciation for individual management styles and perspectives among the team; and recognition of key issues affecting team performance and how to address them. Armed with this information, awareness, and buy-in, you’re ready for Phase 2.

Phase 2: Aligning the Organizational Structure

The purpose of this stage is to create leadership team recognition and buy-in for the right organizational design to support the chosen growth strategy. Like the stage before it, this stage is best conducted off site with the leadership team and, if done well, takes 1 day to complete. The desired outcome should be group recognition and buy-in for: 1) the role requirements and key performance indicators (KPIs) for each business function; 2) the individuals who will perform each role; 3) the talent gaps in the structure; and 4) the new hire priority sequence. The result is a new organizational structure that best supports the company’s growth strategy.

Phase 3: Aligning the Organizational Management Process

This part of the process doesn’t need to be conducted off site. Instead, it’s really a matter of taking the outcomes (the strategy, KPI’s, and short-range and mid-range goals gathered from the prior two phases) and ensuring that the management team is executing towards them with little hindrance. This usually requires a period of time to gather up the right metrics and to make them easy to report on and measure. It also requires spending some extra time with members of the leadership team to ensure they fully understand and are performing in their new roles. At the same time, the goals for longer-range business development need to be managed and tracked through a separate process. Basically, there’s one process to execute on short-range tasks (which is handled during weekly Leadership Team meetings) and one process to execute on long-range business development (which is handled by a Company Council). In other words, don’t attempt to manage long-range goals in a short-range setting. The combined result is better team-wide decision making, an improved capacity to prioritize in the face of change, and more rapid implementations.

Phase 4: Aligning Budgets, Targets, and Rewards

Phase 4 really goes hand in hand with Phase 3. Based on the new strategy, structure, and roles, you’re working with the leadership team to identify the budget and annual, quarterly, and monthly financial and operational targets for the business. The result is greater clarity and incentives for the entire organization, as well as a methodology to track financial and operational performance.

Phase 5: Aligning the Vision, Values, and People

While the the prior phases equip the senior leadership team for success, this phase integrates that groundwork throughout the rest of the organization. You accomplish this by collaborating with the leadership team to help cascade the strategy, vision, values, roles, and expectations down to the rest of the company. The desired outcome is a shared understanding of everyone’s role in shaping the company’s success, vision, and values. The result is a strong organizational culture that supports overall momentum and accomplishment.

Phase 6: Optimization

From here on, until it’s time to realign the organization again, it’s a matter of optimizing overall company performance. The not-so-ironic thing is that, because you’ve invested the time and energy in getting the alignment right, you don’t have to optimize much at all. The ball starts rolling downhill under its own inertia. The outcome is a higher performing, more resilient organization that executes powerfully on its chosen growth strategy.

Summary

To get the most out of your team and create a culture of high performance, focus your efforts on aligning the organization for success. Alignment includes 1) Strategy, or making sure that the company is meeting the needs of its customers, now and over time; 2) Vision and Values, or making sure that people have bought into a common destination and shared modes of acceptable behavior; 3) Structure, or getting the organizational design right so that there is authority and accountability for key functions and the business can scale; 4) Process, or putting in place a method for making good decisions and implementing them fast; and 5) People, or attracting and cultivating talented employees who are a good fit and are intrinsically motivated to do the work that needs to get done. It takes tremendous energy and focus to get alignment – but when you finally get it right, your organization will execute very fast indeed!

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The Motivation Myth: Or, How to Get Your Employees to Work Harder, Faster, Smarter

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WANTED: One Cat Herder

I received a call the other day from a high tech CEO looking for advice. His company is seven years old, brings in about $10M in revenue, and serves a very narrow niche in silicon wafer manufacturing. During the past year, his company pre-sold a new product concept to one of their largest customers. This new product is very innovative and promises to open up a brand new market and transform the company into a $100M-a-year business in three years. The product is due for its beta implementation in six months and you can imagine that the CEO has a lot riding on the outcome.

The reason for his call was that he was feeling a lot of anxiety and frustration. His biggest area of concern was that his employees didn’t seem to “get it.” They weren’t working hard enough, didn’t seem truly motivated, took long lunch breaks, went home early, and were making bone-headed mistakes – mistakes that the CEO (who is very technically savvy himself) would have to constantly step in and fix. “What should I do?” he asked me. “What will motivate them to perform faster, better, and smarter? Should I offer more stock options? Cash bonuses? Fire some people and set an example?” “No,” I told him, “None of those things are going to really solve your problem. If you want higher performance, the solution is to quit trying to motivate your employees and find out what already motivates them.”

The Myth of Motivation

If you treat your staff like mules, they'll act like mules.

Quit trying to motivate people. There’s absolutely nothing you can do to motivate others. People are already intrinsically motivated, engaged, and interested. In fact, when you try to motivate people by offering incentives, threats, bribes, and rewards, you’re actually creating a disincentive to work and lowering job satisfaction and productivity.1.

If you doubt that people are naturally motivated, or perhaps you’re thinking of someone who doesn’t appear to be engaged, creative, or interested at all, I challenge you to look a little deeper. When you do, you’ll see that everyone is highly engaged, motivated, and proficient at something. Here’s one small example. I have a friend whose ten-year-old son is really struggling in school. He’s a sweet kid but at school he acts listless and disinterested and seems unable to keep up with his homework. Last year, the school principal called the parents in and explained that their son was going to be asked to leave the school unless some drastic changes took place. Based on the recommendation of the school counselors, the parents placed the child on medication, hired a tutor, put him into therapy, and created a series of incentives and punishments around his school work. So far, the boy has made some progress and he’s been able to remain in school. But my friend confesses that it’s a constant struggle to have him stay on top of his homework, adjust his medication, keep him motivated, and generally help this little boy thrive. It’s clear that managing the situation has a tremendous cost for the entire family.

I really feel for my friend and his family. It sounds stressful and exhausting on multiple levels. I imagine many organizational managers struggle in a similar vein trying to get some of their employees to really “get it” and “get on board with the program.” When I heard this story, I asked, “OK, so what is your son interested in? Where does he naturally seem to put his energy and attention?” My friend’s reply was telling: “Oh yeah, it’s video games. He’s super interested and passionate about playing his XBox. He studies and reads about the games constantly. He always wants to talk about them and play online with his friends. It’s driving me nuts. We have to limit his playing time and it’s a constant fight between us.”

I tried to point out the contradiction: “So on the one hand, your son is listless and unmotivated when it comes to his school work. On the other, he’s passionate and self-directed in his pursuit of mastering video games. It doesn’t seem that your son lacks motivation. On the contrary, he’s highly motivated, studious, proficient, and shows an extreme amount of skill development. If his school work was designed like a video game, he could be getting straight As. Your son isn’t suffering from a lack of motivation. He’s suffering from a current school setting that doesn’t align with his skills, motivation, and interests. If you were able to change the setting, such as exposing him to a different school or different curriculum, you’d realize that your son has plenty of motivation, determination, and drive to succeed.”

In this scenario, the parents, the counselors, and the school are missing out on the critical difference between motivation and setting. The boy doesn’t need drugs and discipline to be motivated. He’s already extremely motivated, just not around the things his parents and teachers want him to focus on. The same thing is true for your employees. Each person in your company is interested, self-directed, and self-motivated by something. The real question is this: Are they naturally talented, motivated and interested in the things you want them to be? It’s a subtle but profound difference.

Everybody Get in Your Genius Zone!

Find and align people's' innate capabilities, strengths and interests with the work at hand.

Each of us has a “genius zone” or a range of activities and interests in which we excel, that naturally add to our energy and joy, and that inspire us to further develop our capabilities. When our work is spent mostly within our genius zone, we are highly productive, happy, engaged, and self-motivated. When our work is misaligned with our genius zone, we are less productive, unhappy, stressed, and feel burdened. For example, if an employee excels at processing work (pSiu), then give them more assignments involving process-type work (pSiu). If someone enjoys and is strong at interacting and empathizing with people (psiU), then try to give them opportunities to interact with customers (psiU). The point is, once you’re aware of what someone truly likes and excels at, to the extent possible, align them with job functions that give them the opportunity to do just that.

If, however, there is a complete mismatch between an individual’s genius zone and the work at hand, rather than fixing the problem with carrots or sticks, the best course is to find a better fit as soon as possible. In other words, if the demands of the job are diametrically opposite to what the individual is energized by, and if there are no other suitable roles available, then it is best to help this person find another job or role, either within or outside the organization. You’ll be shocked at what happens when you align someone’s role into a setting that supports their respective genius zone. In fact, you may no longer even recognize them.

The life of Ulysses S. Grant provides a valuable lesson for every manager.

For example, in 1860, in the frontier town of Point Pleasant Ohio, there was questionable looking store clerk in his early thirties. According to reports, he wore a grim expression, disheveled clothes, and caused lots of consternation among the local townspeople. First, there were rumors that he had once served in the military but resigned under a dark cloud. Next, it was said, he tried farming but failed in spectacular fashion. Then he dabbled in real estate and failed again. Now here he was in Point Pleasant working in his father’s leather-good store. To hear the townspeople tell it, he was a sorry excuse for a merchant though. He couldn’t sell and didn’t know much at all about his father’s wares. There were also rumors that he had a big problem with whiskey. Then in 1861 something cataclysmic happened. The Civil War broke out. Without a penny to his name and with limited future prospects, this “failed” young man enlisted as a volunteer. Less than two years later, he was promoted to major general. Eventually, he became president of the United States. His name was Ulysses S. Grant.2.

What caused Ulysses S. Grant to transform from an impoverished failure, into the winning general of the Civil War, and ultimately into the President of the United States? You guessed it. The Civil War. Once the Civil War broke out it radically changed the setting or surrounding conditions. With a change in setting, Grant was then able to apply his innate motivation, skills, and talents — and quickly rose up the ranks. But notice that without the corresponding shift in setting, one would never have known General Grant’s real capabilities. Notice too that no amount of incentives, bonus plans, job training programs, coaching, or motivational tactics would have made a meaningful difference in the life of General Grant. Instead, he likely would have remained a surly drunk frustrated at his life conditions and lack of opportunities rather than a hero and a president. So yes, you can attempt to change or influence behavior by offering incentives, job training programs, coaching, or motivational tactics. But the truth is, just like General Grant, your employees will either thrive or fail due to the setting in which they work and the opportunities it presents. So stop thinking about how you can motivate your employees! It’s like pushing water uphill. You’ll expend a lot of energy with little ROI. Instead, find out how they are already motivated and then align their strengths with the work that needs to be performed – or, find employees who are a better fit.

If this seems airy-fairy or out of the question in your current work setting, then I’d challenge you to look deeper still. Even if you run a toxic industrial factory farm surrounded by blood, suffering, and unhealthy employees or a sweatshop run on child labor at $.10 cents an hour (I’m going for the most dismal settings I can imagine), you still have a choice to make. You can take the lowest common denominator and try to control, cajole, monitor, and “motivate” your staff. (If this is your current approach, how’s it really working for you anyway?) Or you can align people into jobs that fit their natural strengths and interests. If you do that, then your job of “managing” shifts from babysitting, firefighting, and cat herding to identifying and aligning strengths, communicating clear expectations, and providing constructive feedback. It may not feel easy, in the short term, to align people’s roles with their respective genius zones, but if you want self-motivated, creative, and high-performing people for the long run – and actually enjoy managing them – it’s the only choice you can make.

From a manager’s perspective, then, the real question is not how to motivate or incentivize employees to perform. The real question is, “where is the natural affinity and alignment between this person’s style, capabilities, and interests and the work that needs to be done?” The reason for this question should make sense intuitively. When there’s alignment between an individual’s natural motivations, skills, and interests and the current work setting, that person will enjoy and thrive in their role. When there isn’t, they’ll struggle and underperform or even fail.

Don’t make the mistake of thinking otherwise. You can’t change the fundamental nature of your employees any more than a parent can change the fundamental nature of their children. Guide it? Yes. Influence it? Certainly. Change it? Not a chance.

What About Compensation?

Find the intrinsic - not the extrinsic - motivation.

You might be asking, “But what about compensation, bonuses, stock-options, profit sharing, performance reviews, career paths, retention tactics, and all the other elements of modern human resources theory? Aren’t these things critical too in creating aligned and high-performing employees?” The answer is no, not really. It’s obviously important to pay fair compensation, to treat people with respect and dignity, to provide constructive feedback, to share the rewards of success, and to help people find fulfillment through their work – and there are many tactics that a leader can choose that are appropriate to the time, place, and organizational culture. There’s no one right answer. But don’t confuse these tactics with the fundamentals of aligning people into roles that they naturally thrive at. If you get and keep alignment between a person’s role and their genius zone, then they will be naturally motivated, engaged, learning, and growing. The HR tactics can be kept very simple. If there’s no alignment, on the other hand, then even the most compelling compensation plan isn’t going to inspire high productivity for long.

If you still don’t believe that compensation doesn’t dictate performance, just take a look at organizational cultures in your local church, school, softball team, or volunteer organization. What you’ll find is very hard-working, dedicated people who, even in the face of obstacles, are committed to their cause. The tragic thing is that most companies that are failing to reach their full potential actually do the opposite of what they should. They put their efforts into motivational tactics, hiring analysis, compensation plans, performance reviews, and that kind of thing but skip out on the most critical aspect of getting people to perform at a high level: matching them to their strengths. It’s like putting the cart before the horse. Sure, you can do it, but it’s not going to cause the cart to go anywhere.

Summary

When it comes to motivating people – don’t. Instead, put them in situations where their innate genius zone comes to life and watch them thrive. If you’re consumed by a focus on compensation structures and stock vesting schedules, you’re on the wrong track entirely. Instead, focus on aligning the work that needs to be performed with people’s natural strengths and interests. The result will be improved creativity, faster execution, and an innate drive to perform at a high level. If you can accomplish this, your job as a manager will become so much easier – not to mention a lot more fun and satisfying.

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1. Some informative books on the subject of incentives causing more harm than good include Alfie Kohn’s Punished by Rewards: The Trouble with Gold Stars, Incentive Plans, A’s, Praise, and Other Bribes and a Whole New Mind by Daniel Pink.

2. The Lucifer Principle by Howard Bloom.