Q: Is capitalism doomed?

I originally published this article in January 2011 but it seemed like a good response to this question. The bottom line is that if humanity is going to survive and thrive, we must restructure our economy and society towards decentralized local production.

Good managers run their businesses by the numbers. But imagine for a moment that your business is Earth. As the manager, you’re responsible for hitting your quarterly and long-term targets. These include providing increasing levels of prosperity, health, and happiness for all of Earth’s inhabitants, managing the use of non-renewable resources, and ensuring that future generations of stakeholders thrive. You run a dashboard report and here’s a scan of what you’re working with:

– The human population is forecasted to reach 9 billion, up from 6 billion in just forty years.
– The American middle class, once a driver for economic prosperity, is in rapid decline.
– More than 80% of sewage in developing countries is discharged untreated, polluting rivers, lakes, and water supplies.
Antibiotic resistance is increasing, posing a major threat of new super diseases.
Nearly 70% of the world’s fish stocks are depleted or over-exploited.
– The rate of species extinction is now 100-1,000 times greater than suggested by the fossil records before humans.
– The world is getting hotter, the ocean is 30% more acidic than 260 years ago, and extreme weather events are intensifying.

You stop reading, knowing that you could spend a lifetime just reviewing the statistics. Your own gut (something you’ve come to rely on as a good manager) also tells you something is off. Modern life just doesn’t seem that high functioning for most of those in your home country. Everyone has more technology, more pressure, but less overall happiness. It’s time to take action. What do you do?

Like any good manager, you take the stats and group them into a pattern. As you scan across the many sectors of the Earth’s man-made systems, you notice something suspicious. No matter what the sector – food, water, health, technology, government, finance, entertainment, trade – you notice a consistent trend. Everything follows the same pattern. It looks something like this:

Centralized production occurs where production is owned and controlled by large producers or aggregators of goods and services which are in turn distributed to the market and made available for sale. And therein lies the problem and the solution.

The problem is this: In order to be more efficient, production always becomes more and more centralized. This makes sense. Organizations try to make the most use of their resources. By getting larger and more systematized, they are able to acquire more resources more efficiently, achieve economies of scale, and have a better chance to compete.

However, centralized production is insatiable and can get so large that it becomes a threat to the surrounding system. This threat takes five basic forms.

Centralized Pollutants
Centralized production creates large amounts of pollution in one location. Examples include factory farms (on land and in the sea), dumps, and large-scale factories that spew emissions. Even cities housing millions of people. Economist call these costs “externalities” but they should really call them “internalities” because we all share the cost burden. In addition, when accidents happen, the sheer volume of pollutants has the potential to produce disaster.

De Facto Monopolies
Centralized production creates monopolies (legal or effective) that threaten new innovations and opportunities emerging in the marketplace. Examples include big media, banking, and medical conglomerates that set the rules, engage in insider trading, and generally work to stack the deck in their favor.

Too Big to Fail
Centralized production can get so big in one industry that its collapse can threaten the survival of the entire system. Recent examples include the global housing collapse and subsequent bank bailouts. Or imagine that the oil industry ceased to function and, if it did, how quickly our society would come to a screeching halt.

Lack of Diversity

Over millions of years, the biosphere has demonstrated that diversity is a very, very good thing. Nature always creates diversity because this gives it the highest resiliency. In centralized production, however, monocultures prevail because they enable efficient production. At the same time, these are also susceptible to being wiped out due to disease and other systemic disasters.

High Unemployment
Centralized production is a relentless pursuit of greater efficiency. Because more and more tasks can be automated, there’s less and less need to employ people. Less people employed means less people to buy products and services. Those who control centralized production become incredibly wealthy while the middle class sinks deeper into poverty and debt. Because of continuing and relentless automation,1 there simply are not enough jobs for everyone. Many of those who are able to get jobs are finding that they are making less money than they used to. In fact, an increasingly large percentage of Americans are working at low-wage retail and service jobs.

What’s the solution? Because you’re a wise and seasoned manager, you know that you can’t micro-manage every global decision by trying to centralize control. Instead, you commit to implementing solutions with the highest probability of creating a global environment, where the best possible outcome is most likely to happen, and for the greatest number of people.

You know from experience that efficiency always overpowers effectiveness and that the demands of today always overpower the needs of tomorrow. Therefore, you vow to create a new system where effectiveness is given power over efficiency, and where long-run needs are accounted for and prioritized. In short, you flip the Centralized Production picture around and reveal Dispersed Local Production:

With Dispersed Local Production (DLP), industries composed of widely dispersed, small-scale and intermediate-sized organizations owned by multiple independent operators produce and distribute goods and services within their local and regional markets. In a phrase, “small is beautiful.”

DLP would counterbalance both the manifestations and increasing risks of Centralized Production. Using such a model creates dispersed pollutants that are more manageable in the surrounding environment, stimulates local innovation and adaptation, generates organizations that are too small to cause systemic harm, and maintains the benefits of high diversity.

Dispersed Pollutants
When production is dispersed, it creates dispersed pollutants that are more manageable for the surrounding environment. For example, rather than aggregating sewage into large-scale treatment plants that leak and pose a great risk to oceans and land, in the DLP model, sewage is treated on the premises and recycled back into the local agriculture. Or rather than having large-scale agriculture production that relies on moncultures and pesticides, DLP relies on local, organic agriculture that uses minimal quantities of chemicals.

Innovation and Adaptation
By tilting the playing field in favor of the “small” and “dispersed,” innovation and adaptation can increase. For example, rather than running large-scale, centralized power plants, a DLP model would support the production of decentralized energy plants where power is produced and consumed locally.

Too Small to Cause Systemic Harm
The internet was originally designed as a DLP system. If one node is taken out, this doesn’t threaten the entire system. Compare this to our current banking system. If one large bank fails, this threatens the existence of the entire financial system. Anything that is large enough to pose such a risk should be brought down to a manageable size.

Wild Diversity
Local dispersed production can unleash new levels of diversity, regional flavors, and nuances that are being lost in today’s homogenized global environment. Let diversity reign in every system, from education to healthcare. Diversity creates resiliency and unlocks new innovations.

Engaged Employment
One of the classic paradoxes of the centralized production system is that many workers tend to feel disengaged from the products and services they create. Imagine the alienation of a shoe factory worker who adds laces to shoes that are shipped off around the world for someone else to wear. Now image the engaged employment of a cobbler who makes a complete pair of shoes that is sold to her neighbors.

As Earth’s manager, how do you create DLP? The best course of action is to create universal incentives for engaging in DLP and repercussions for continuing in the status quo. One obvious place to begin is the current tax code. As Earth’s manager, you decide to make a clear distinction between Private Wealth and Common Wealth.

Private Wealth is that which is created by individual and collective labor – things like businesses, investments, and salaries. Common Wealth is that which is provided by nature. Things like air, water, land, and natural resources. You realize that the efficiency principle operating within centralized production is powerful, but that it doesn’t capture the full cost to the Common Wealth. So instead, you decide to shift the tax basis, which today is calculated on Private Wealth, and instead calculate it based on pollution into the Common Wealth. This doesn’t mean that more taxes will be paid, but rather that more effective taxes will be paid.

Using this model, an operator who still chose to have large-scale centralized production could do so as long as it was able to pay the tax for polluting the Common Wealth. It would not have to pay taxes on “good” things such as jobs, income, buildings, homes, sales, or capital. Instead, those taxes would shift to “bad” things such as waste, pollution, and over-extraction of the Common Wealth. This shift in taxes would offer the incentives and penalties to create a world that is effective as well as efficient and that is successful in both the short run and the long run.

And although the challenges facing the world are immense, practical solutions do exist. As Peter Drucker eloquently put it, in the 20th century, “We packed into every decade as much ‘history’ as one usually finds in a century; and little of it was ‘benign.’ Yet most of this world, and especially the developed world, somehow managed not only to recover from the catastrophes again and again but to regain direction and momentum – economic, social, even political. The main reason was that ordinary people, people running the every day concerns of business and institutions, took responsibility and kept on building for tomorrow while all around them the world came crashing down.” And now it’s up to you and me.

To our success!


1 The existing belief among most economists is that technical innovation creates disruptions that ultimately lead to more growth and more employment. For example, the accountant who loses his job because it can be done more quickly and cheaply by outsourcing does so temporarily. According to this narrative, as the overall global economy improves, that accountant can be retrained for a better, higher-paying job. Exponential improvements in automation, computers, and artificial intelligence, however, are now making this belief suspect. We must accept that, over the coming decades, there will be very few jobs that a normal human can do (professional, artistic, or otherwise) that a machine will not be able to do in better, faster, and cheaper ways. Check out http://www.thelightsinthetunnel.com for more information.

The Happy High Achievers

If you're like most high achievers, real happiness remains elusive.

Are you happy in your job? The data says you’re probably not. I can also speak from experience. For most of my life, I operated under a false assumption that the more successful I became, the more happiness I’d feel. But what I found was just the opposite. At one point in my early thirties, I had the experience of attaining everything I had once dreamed of. But instead of feeling elated and happy, I felt burdened, stressed, and beaten down by constant and competing demands. In my experience in the Young President’s Association, a worldwide group of successful CEOs, I found that very few were actually genuinely happy as well.

Why is this? Why doesn’t greater success seem to lead to greater happiness? There’s an interesting study on success and happiness by Dr. Vance Caesar of the Caesar Group that sheds some light on this phenomenon. In an ongoing study of high achievers (the top 2-3 percent of individuals in a given field) across all walks of life, Dr. Caesar discovered this: Only 1 out of 10 high achievers (.2 to .3 percent of the total pool) rate themselves as authentically happy. Imagine that: If you gather ten thousand top achievers from all walks of life—the rich, the famous, the talented—only a handful will actually consider themselves happy.

What’s the difference between a happy high achiever and the rest? In his research, Dr. Caesar identifies eight attributes that dictate both success and happiness. Most of these are fairly easy to recognize and intuitively make sense. They include a driving sense of purpose, a compelling vision, and the intrinsic feeling that your work is meaningful. Other attributes include beliefs and behaviors that create inner peace, a regular process involving the three Rs (review, renewal, and recommitment), and outstanding discipline. Additionally, happy high achievers generally work with mentors and coaches.

It turns out that one of the secrets of the top of the top—the tiny fraction that is both successful and happy—is that they mastered the game of energy management to such a point that they get more than they give from all of their key relationships. That may sound confusing at first so allow me to explain.

As we’ve discussed, everything is a system and every system exists in relationship to other systems. What happy high achievers recognize is that everything in life is ultimately an exchange of energy. After our health, the single greatest factor that energizes us or depletes us is the quality of our closest relationships. If you’ve ever been in a “vampire” relationship that sucks all the energy out of you, you know it can take days to recover from even a brief encounter. On the other hand, if you have a best friend who always seems to make you feel better, then even a brief encounter can float you higher for days. Recognizing this, happy high achievers make a conscious effort to establish and nurture energizing relationships.

Successful relationships are a two-way street. In an ineffective relationship, one or both parties experience the feeling of giving more energy than they get back. For example, a marriage where one partner feels she is constantly giving more than getting creates resentment. Over time, that resentment builds up and she says, “I’m leaving you because my needs aren’t being met.” In a business setting, the employee who feels he is continually giving more to the company than he is getting in return will soon become bitter and burned out, with either an ulcer or a new job search on the horizon.

On the other hand, a highly effective relationship is one where both parties are able to give each other what they need in a way that adds to their own energy. For example, a marriage where it’s easy (i.e., there is a low cost of energy) for both partners to meet the needs of the other and both partners feel their needs are met is a highly successful union. The relationship “just works.” In a business setting, you’ll find a great mutual fit when an employee feels she is getting more from her job than giving to it, and her managers feel they are getting more from her than they’re giving in total compensation. The employee is thinking, “I can’t believe they pay me to do this. I would do it for free . . . can you believe it?” Similarly, her managers are thinking, “She is one of our top performers. She’s passionate about what she does and delivers outstanding work. I wish I had ten more like her.” The bottom line is that the relationship is net additive, supportive, and energizing to both parties. It just works.

The key differentiator, then, between happy high achievers and the rest is that happy high achievers are extremely vigilant about only allowing relationships into their lives that add to their energy. This includes their marriages as well as their relationships with their families, companies, boards of directors, key staff, and important clients. They make it a point to only allow relationships that are net additive. If a relationship isn’t net additive, it’s no longer one of their primary relationships. It gets shifted or it is gone.

Back to The Success Guide.

Next to Are You Giving More Than You Get in Return?

Where Are Your Energy Drains?

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 The Happy High Achievers.

The Universal Success Formula

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.

Back to Tutorials

The Misaligned Organization and What to Do About It

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!

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

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.

Back to Tutorials.


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.

Mastering Team-Based Decision Making

Like a rock rolling down hill, you want to get the mass of your organization moving quickly in the right direction.

Every business has mass, which is a measure of its resistance to change. The challenge in getting an organization to change direction is the fact that its mass isn’t neatly self-contained. Rather, it’s scattered throughout its people, systems, structures, and processes – and the collective inertia causes resistance to change. In order to get the organization to execute on its strategy, you’ve got to get the mass contained and headed in one direction.

Having aligned vision and values, as well as an aligned organizational structure, is the first step. If you have misalignment in these areas, then no matter what, you’re not going to get very far. At the same time, alignment in vision, values, and structure alone won’t cause the business to move. They just help to hold the mass together and keep internal friction low. Making the organization come alive and move quickly in a chosen direction requires that two things be done well: making and implementing decisions. In fact, the secret to organizational momentum lies in continually making good decisions and implementing them quickly.

The Most Important Process in Your Business

Every business relies on multiple processes (sales, customer service, finance, product development, marketing, etc.). These can be highly visible or nearly invisible, organic, haphazard, detailed, flexible, constant, or changing and either a boon or a burden. When a process is performing well, it allows the work to get done better and faster. When it’s not, you feel like you’re swimming upstream.

While your business has many different processes – some working well and others maybe a total clusterf#@*k – it’s the process of decision making and implementation that’s most critical to your success. Why? Because at the most fundamental level, a business is simply a decision-making and implementation system. Think about it — every problem and opportunity require a decision to be made (and yes, deciding to do nothing is a decision too) and a solution to be implemented. If the business does this well — if it continually makes good decisions and implements them fast — then its momentum will increase and it will be successful. If it does the opposite — if it makes bad decisions, or if it makes good decisions but implements them slowly, or my personal favorite, makes bad decisions and implements them quickly — then it will fail. Just as a haphazard sales process results in lost sales, poor fulfillment, and an inability to scale, a poor decision-making and implementation process results in poor decisions, flawed implementations, and an inability to scale the business.

What’s ironic about the process of decision making and implementation is that most businesses don’t even think of it as a process. (In case you’re asking… decision making and implementation are not two distinct things. They’re really two parts of one process that must go hand in hand. More on this in a bit.) While there’s usually a recognized process for functions like sales and customer service, the process for decision making and implementation is hidden in plain sight and often operating haphazardly. Like many of the principles I discuss in my work, it’s a crucial meta-level process with important applications all across the board.

In order to help your business accelerate its execution speed, I’m going to explain what an effective decision-making and implementation process is, how to do it well, who should be involved, and when to use it.

What Does an Effective Decision-Making and Implementation Process Look Like?

I want to give you an immediate sense of what the process of making good decisions and implementing them quickly actually looks like by sharing a short movie clip. I call it the “Dances with Wolves Management Meeting.” There’s a lot that modern-day management team meetings can learn from it. Unless you speak Sioux, you won’t understand what they’re saying – and it doesn’t matter. As they say, 90% of communication is non-verbal. The gist is that the senior tribe members have gathered to discuss what to do about foreigners invading their territory. You can compare that to any company faced with a cataclysmic market change and struggling with what to do about it.

Dances with Wolves Management Meeting from Lex Sisney on Vimeo.

Here’s what I want you to notice about the clip:

1) Notice that there’s a lot of conflict. People in the meeting have really strong opinions and don’t hold back in sharing them. Notice too that the conflict doesn’t destroy the affinity that tribe members have for one another. They’re debating the merits of different approaches in an attempt to find the best one. They don’t hold back but they’re not attacking each other, either. Each person has their say. When a person is speaking, each member seems to be genuinely listening and considering that perspective.

2) Notice that there’s one decision maker. It’s the wizened chief who sits back and listens until he’s heard enough perspectives. He gives plenty of time to review the information and generate insights from that information. But once that process is complete and the chief decides, the entire tribe gets behind the decision. There’s full debate pre-decision, no debate post-decision. Put another way, the meeting was fully participative but not democratic — there’s one person ultimately in charge. Once the decision is made, it’s time to stop debating and start executing.

3) Notice that it’s hard to figure out what to do. Life was complicated then. It’s even more complicated now. It’s hard to make good decisions. Despite the fact that it’s a critical decision, however, the chief doesn’t get excited or agitated. He’s calm; he’s cool; he listens. Then he decides and people act. While you may disagree with their decision, you’ll have a hard time disagreeing with the process the tribe used to reach it (other than they should have made a concerted effort to get more data up front — but more on the importance of data gathering in a bit).

4) Notice that the meeting has all the key influencers and centers of power in attendance. The chief and the tribe intuitively recognize a universal truth: Whoever is going to be impacted downstream by a decision, should be involved upstream in the decision-making process itself. Why? When people fully participate in the decision-making process, they’re less resistant to the implementation of its outcomes. In fact, they’re usually in favor of those outcomes and eagerly want to drive them forward. Imagine, on the other hand, if the chief skipped this meeting and decided what to do in isolation or with a few elders. Whatever the decision, the collective mass of the rest of the tribe would have slowed down or resisted, subtly or not so subtly, the implementation. Members of the tribe would have questioned, doubted, and disagreed (e.g., “Why are we fighting?” Or “Why are we fleeing?”). By involving a critical mass of the tribe up front in the decision itself, the resistance to change was much lower post-decision and implementation swifter.

5) Notice that the meeting doesn’t linger. The tribe gathers together. They’re all present and engaged. They invest as much time as they need and no more. Then they wrap. I’m willing to bet that most of your management meetings aren’t run nearly as efficiently.

The Rhythm of Decision Making and Implementation

There’s a rhythm to decision making and implementation. Most organizations screw it up, so pay attention. The right rhythm is slow-quick. It’s not quick-slow or quick-quick – and it’s clearly not slow-slow. What do I mean? Slow-quick means that you spend adequate time in making a good decision and then fly like a rocket on implementation. Don’t do the opposite. In other words, don’t make half-baked rapid-fire decisions that get bogged down on implementation. Don’t be that company that confuses rapid decision making with rapid implementation. And don’t be that company that’s just bogged down and lethargic generally. There’s a rhythm to life, a rhythm to dance, a rhythm to decision making and implementation. Be astute and aware enough to know which rhythm to activate and when.

The most common reason companies get this rhythm wrong is time pressure. You need to be able to transcend time pressure in the decision-making phase of the process and then use it to your advantage during the implementation phase. Allow me to explain. Constant time pressure results in poor decisions. When a company’s leadership feels a tremendous amount of pressure to execute quickly in a nebulous environment – and there’s a feeling that doing something is better than doing nothing – it will tend to make half-baked, rapid-fire decisions. This approach is a classic folly because the team fails to see the complete picture before them. Under time pressure, it fails to take into account different perspectives, gather enough information, get buy-in, find new insights in the data, make a well-rounded decision, and reinforce it. The result is a poor decision that gets bogged down on implementation. The team tries to go quick-quick but the result is quick-slow.

When we're under time pressure, the full picture looks like this. The results is poor decisions and slow or flawed implementations.

Make decisions once a critical mass of the company contributes to everyone to seeing the full picture. The result will be really fast implementation.

If you’ve ever worked in a “fire-ready-aim” setting, then you already know that making rapid-fire decisions doesn’t result in faster execution speed – which you do want. What happens instead is that a lot of half-baked decisions get rattled off, pile up, and create bottlenecks on implementation. And unlike decision making, implementation is where you want to use time pressure to your advantage, setting clear outcomes and delivery dates. It’s not how fast you’re deciding, it’s how fast you’re implementing on a well-formed solution.

Many startup founders will change their strategy from one moment to the next, justifying this with something like, “We have to be nimble around here. The market is always shifting and we’re trying to find our footing. We need to fail fast and keep trying. If you can’t keep up, get off the boat.” This is a perfect example of how the concept “fail fast” is often misunderstood. “Fail fast” is an expression used in high-tech startups. It means that, in environments with rapid change and time pressure, you can only find answers in the real world, not on a white board. You therefore want to get the product released promptly and tested in the hands of actual customers because this allows you to better understand their needs. If the product “fails,” this is seen as net positive (assuming client expectations are managed) because it eliminates more uncertainty about what doesn’t work and you can test again based on better information. However, “fail fast” isn’t a creed you use to keep making poor, ill-formed decisions time and again. It means that you need to implement a good decision fast. It’s a slogan for swift implementation, not erratic decision making.

Of course it’s not only startups that suffer from fast decision making and poor implementations. A recent prominent example is NetFlix. In 2011, NetFlix announced that it would segment its business into two distinct brands, one focused on streaming (NetFlix) and the other on DVD delivery (Qwikster). Reed Hastings, the company CEO, was right in my opinion to attempt to restructure the business into two distinct business units (see Strategy). But in their quest to hurry a decision, they screwed up the implementation. They didn’t set up a process to communicate and manage expectations with their customer base and key influencers; they didn’t acquire the social media identifiers for Qwikster; and they didn’t recognize that customers would balk at having two logins without a process to make it easy for them. The resulting market backlash really hurt them – cutting their market cap in half. Reed Hastings was later quoted as saying, “We simply moved too quickly, and that’s where you get those missed execution details. It’s causing, as you would expect, an internal reflectiveness. We know that we need to do better going forward. We need to take a few deep breaths and not move quite as quickly. But we also don’t want to overcorrect and start moving stodgily.”

That’s exactly right.

The truth is that fast execution requires a good decision-making process up front – and effective decision making takes time! It takes time to gather the right people, set the stage, gather data, generate insights, decide what to do, assign action items, and reinforce the decision. It’s counterintuitive but the right path forward is to slow down on the decision-making so that you can speed up on the implementation. In other words, you slow down to go fast.

Of course, this all presupposes that you actually have the time. If it’s a real crisis, then you’ll need to act swiftly and try to reduce the negative fallout later. But whatever you do, don’t confuse acting swiftly with acting smartly.

The Steps to an Effective Decision-Making and Implementation Process

There are six steps to effective decision making that are based on the agile development methodology of the Agile Alliance.1 The pre-step is based on the notion of “CAPI” or coalesced authority, power, and influence developed by Ichak Adizes and is what allows for fast implementation.2 Here’s how all the steps work together.

Pre-stepGet the Right People in the Room
Step #1Set the Stage
Step #2Gather Data
Step #3Generate Insights
Step #4Decide What to Do
Step #5Assign Action Steps
Step #6Reinforce

Pre-Step: Get the Right People in the Room

There’s a really simple rule of thumb to remember for good decision making and fast implementation: Identify who will be impacted by a decision downstream, and involve them upstream in the decision-making process. Intuitively, this makes sense. In your own life, would you prefer to personally decide what to do or have someone tell you what to do? When you’re given an opportunity to genuinely participate in a decision-making process, not only do you help to create a better decision through your unique insights, but you also become more willing to implement the decision itself. You feel a greater sense of ownership and less resistance to change.

Gathering a critical mass in the company – and specifically those who will be impacted downstream by a decision – also leads to better outcomes because different people see different pieces of the full picture. Each person impacted has a unique perspective on the problem or opportunity: One sees what to do; another has information on how to do it; another can see new ways to accomplish the same task; and yet another can empathize with how others will be impacted. Each person brings different information, experience, and knowledge to bear on the problem or opportunity, contributing to everyone seeing the full picture.

Here’s a funny story of a CEO who failed to gather in the decision-making process upstream those who would be impacted downstream. I’m not sure where it originates but I have to believe there’s some truth to it because it sounds all too common. It goes like this….

“A toothpaste factory had a problem: they sometimes shipped empty boxes, without the tube inside. This was due to the way the production line was set up, and people with experience in designing production lines will tell you how difficult it is to have everything happen with timings so precise that every single unit coming out of it is perfect 100% of the time. Small variations in the environment (which can’t be controlled in a cost-effective fashion) mean you must have quality assurance checks smartly distributed across the line so that customers all the way down the supermarket don’t get pissed off and buy someone else’s product instead.

Understanding how important that was, the CEO of the toothpaste factory got the top people in the company together and they decided to start a new project, in which they would hire an external engineering company to solve their empty boxes problem, as their engineering department was already too stretched to take on any extra effort.

The project followed the usual process: budget and project sponsor allocated, RFP, third-parties selected, and six months (and $8 million) later they had a fantastic solution — on time, on budget, high quality and everyone in the project had a great time. They solved the problem by using some high-tech precision scales that would sound a bell and flash lights whenever a toothpaste box weighing less than it should. The line would stop, and someone had to walk over and yank the defective box out of it, pressing another button when done.

A while later, the CEO decides to have a look at the ROI of the project: amazing results! No empty boxes ever shipped out of the factory after the scales were put in place. Very few customer complaints, and they were gaining market share. “That’s some money well spent!” – he says, before looking closely at the other statistics in the report.

It turns out, the number of defects picked up by the scales was 0 after three weeks of production use. It should’ve been picking up at least a dozen a day, so maybe there was something wrong with the report. He filed a bug against it, and after some investigation, the engineers come back saying the report was actually correct. The scales really weren’t picking up any defects, because all boxes that got to that point in the conveyor belt were good.

Puzzled, the CEO travels down to the factory, and walks up to the part of the line where the precision scales were installed. A few feet before it, there was a $20 desk fan, blowing the empty boxes out of the belt and into a bin. “Oh, that — one of the guys put it there ’cause he was tired of walking over every time the bell rang”, says one of the workers.”

You wouldn’t be reading this story if the CEO had first actually taken the time to include the shop floor workers — those who would be most impacted by the decision — in the decision-making process itself. If he had, he likely would have saved 6 months and $7,999,980! But clearly it is neither time- nor cost-effective in most instances to gather every individual who will be impacted downstream by a decision upstream in the decision-making process. That’s why a country uses a representative democracy, why a public company uses a board of directors, or why parents are the legal guardians of their children. These gather the mass and centralize the decision making into one representative body. The same is true for your organization. It has a critical mass that can represent the rest of the company.

So who do you gather in? The fact is that, in order to effect change, you must gather only the minimum amount of critical mass into the decision-making process – and that includes only those with authority, power, and influence over the implementation.

Authority

According to Ichak Adizes, authority is the legal right to decide “yes” and “no.” Many people can say “no” in an organization but very few can actually say “yes.” Think of authority like a crown and scepter. Whoever wears the crown has the authority to say “yes” and “no” within the context of what you want to achieve. In politics, the President has authority to sign a bill in to law or to veto it. That’s a “yes” or a “no.” In baseball, an umpire has authority to call balls and strikes. That’s a “yes” or a “no” too. In a trial, the jury has the authority to decide guilt or innocence. Wherever you observe the ability to say “yes” and “no,” that’s authority.

To gather authority, you’ve got to get at least the lowest level of authority involved in the decision-making process. For example, imagine a Director of Operations who is charged with improving efficiency in a production line. There’s a new machine that the Director wants to purchase. If she goes and asks the VP of Finance for the money, the VP of Finance can say, “No, sorry, it’s not in the budget.” Or, “No, you need to get approval from the budget committee first.” But notice how the VP of Finance cannot also say, “Yes, here’s your check” without additional authority being granted from somewhere else. Therefore, the VP of Finance has no authority over this particular decision.

Don’t confuse those who can say “yes” but not “no” with authority, either. In this case, the Director brings the purchase request to a budgetary committee. The budgetary committee can only endorse items that are within the budget and that fit the budgetary guidelines. That is, if it’s within the budget and fits the budgetary guidelines, and there are no errors on the requisition, then the budgetary committee must say “yes.” They have no authority to also say “no.” If the Director does get budgetary committee approval, she may mistakenly believe that she’s gotten authority for the project. She hasn’t.

Instead, to gather authority, the Director must seek out who can actually say “yes” and “no” to the purchase and involve him or her up front in the decision-making process. In this case, it may be herself (if the authority was granted to her by the CEO) or, if not, then it’s the CEO. If she fails to do this, then she’ll never have a clear indication of where the project really stands. If she’s smart, and if the decision is important, she’ll involve the person with authority to say “yes” and “no” in the decision-making process itself.

Power

Power is the ability to help or hinder. Think of power like a lever, whereby those who have power over implementation can effectively help lever you up or lever you down. Power exists throughout the organization, not just at the top. For example, in politics, the President has authority but Congress has power. It can help or hinder the President’s agenda. Even though you’re a parent and have the authority to say “yes” or “no,” your kids certainly have power in that they can help or hinder how you run the family. A CEO of a Fortune 500 company may seem to possess a lot of power, and they do, but if you look closely, you’ll see that the power also exists within the unions, customers, media, and management team – all of which can help or hinder the CEO’s agenda.

To gather power, recognize who can help or hinder the implementation of your objective and involve them up front in the decision-making process. Returning to the previous example, who might help or hinder the Director of Operation’s desire to improve efficiency? In addition to the Director’s boss, this would also include the staff who work on the production line, design the systems, and perform maintenance. Involving those with power up front will generally contribute to a better decision, which becomes their own. For example, it may be that a new machine isn’t required to improve efficiency. Perhaps someone on the production line has a creative solution. But if a new machine is required, then those who will be responsible for using it can help to choose the right one, based on their firsthand experience, and they won’t resist it like they would if it was purchased and installed out of the blue. Asking those who will have to use a piece of equipment in their daily work for their opinion on features may seem blindingly obvious. But it’s often overlooked like the example in the toothpaste factory.

Influence

Influence is the ability to get what you want without relying on authority or power. Think of influence like a pulpit. Individuals with a great deal of influence rely on who they are, who they know, and what they say. For example, a politician on the campaign trail is attempting to gain votes through influence. A company launching a marketing campaign to impact brand awareness and buying behavior is also working through influence. When a salesperson is meeting with a prospect, they’re also attempting to use influence to activate the prospect’s authority to purchase.

To gather influence, you should recognize who has influence over the implementation and involve them up front in the decision-making process as well. Who can influence, positively or negatively, the Director of Operation’s desire to improve efficiency and purchase a new machine? There’s the influence of the boss and staff. There’s also the influence of industry experts, case studies, and other buyers’ testimonials. For example, if the Director hires an industry consultant to assess the situation and make a recommendation, the consultant has influence over the outcome, but no authority or real power.

To drive this concept of gathering authority, power, and influence home, imagine that the circle below represents the size of the task that you want to accomplish. If it’s a small task that you can do yourself, then you already have the authority, power, and influence coalesced and there’s no need to involve anyone else. Just go do the task. But if this is a “big task,” this generally means that the mass of authority, power, and influence are spread out. There’s a lot of mass that must first be coalesced into the decision-making process itself.

If your task is big, then you'll need to gather in the authority, power, and influence to make it happen.

If you don’t gather in the mass, the resistance to change remains high; poor decisions get made because they lack vital inputs from those impacted by the decision; and implementation gets bogged down. Conversely, if you gather in the mass first, two things happen: 1) Better decisions are made because they take into account multiple different perspectives and interests and 2) Implementation is swift because a critical mass within the organization has adopted the decision as their own (assuming a good decision-making process was followed, there’s alignment in vision and values, and the structure is well designed) and they’ll collectively drive it forward. To use a physics analogy, if you first coalesce the organizational mass, then you can “hit” it with a force of change and it will quickly accelerate in a new direction.

Once you've gathered in the mass of authority, power, and influence, it's much easier to enact a change.

Now that you’re familiar with the basic concepts of authority, power, and influence, you can see their effects everywhere you look. In a courtroom, the judge has power to decide what is admissible as evidence. The jurors have authority to decide a verdict. The lawyers rely on influence to sway the jury. Each side calls in witnesses that can help or hinder their case. In high-level selling, one of the first questions an experienced salesperson will ask is, “Who has authority to make a decision?” Then, if they’re smart, they will do their best to get that person involved in the entire selling process. But if there’s a strong gatekeeper, the salesperson suffers from sleepless nights because they must rely purely on influencing others who in turn will hopefully influence the final authority. Successful salespeople usually have powerful networks of contacts (people who can help or hinder them in making introductions) and have mastered the art of influence to sway buyer behavior. And great salespeople always sell to the decision-maker directly.

To gather authority, power, and influence literally means to get everyone in the same room (or at least on the same phone call) and to follow the 6 steps of effective decision-making as a team. It does not mean to periodically ping the authority, power, and influence and update them on your progress. Nor does it mean to inform them once a decision has been made. To reduce the resistance to change, you need to involve them in the decision-making process itself. Why can’t you periodically just ping the authority, power, and influence of your progress? For the same reason that lawyers do not conduct a jury trial independently and then report their findings for the jury to decide upon. A fair trial couldn’t work this way. The coalesced authority, power, and influence must all participate in the decision-making process firsthand. Notice too that, if a jury member, lawyer, or judge can’t make the day of the trial, then the trial is postponed. Similarly, if you can’t get the authority, power, and influence in the room or on the phone at the same time, you would be well served to postpone the meeting to a later date. If you try to press ahead, you’ll likely end up increasing the resistance to change, not decreasing it.

Step 1: Set the Stage

Once you’ve identified and gathered in the mass of authority, power, and influence, you need to set the stage of the decision-making process. Setting the stage means getting everyone in the room on the same page about why the meeting or project is taking place, the desired outcomes, the participants’ roles and responsibilities (including who has authority to make the final yes/no decision), and the rules and expectations for the process. Because time pressure is the enemy of effective decision making, one of the most important things you can do when setting the stage is to create the right environment for the best decision to unfold. This requires unfreezing the group, getting initial buy-in to the problem/opportunity, and running efficient and timely meetings.

Unfreezing
One of the most important parts of setting the stage is easy to do but often mistakenly skipped. What is it? It’s what the founder of organizational psychology, Kurt Lewin, called “unfreezing.” What Lewin recognized in the early 1900s is that inertia exists within people just as it exists within objects. Basically, when you and I show up to a meeting, our bodies are present but our minds are not. Instead, we’re stuck in a mental inertia still thinking about something else. The last phone call we were on. The emails we just received. A family or personal issue. The work we still need to accomplish. The hot girl or guy we fantasize about. We’re hungry. Whatever. The list is infinite.

The only purpose of having a meeting is to have the team participate through the process as one unit, through which each participant brings their whole being, experience, knowledge, and awareness to the task at hand. This requires everyone involved to first unlock or unfreeze their mental inertia — to create a sense of space or mental capacity to focus on the task and embody a future change. If this was true in the early 1900s, its even more true in our faster-paced times.

It’s actually pretty easy to unfreeze a group as long as you take a few minutes to do it. How? The simplest way is to get each participant to talk out loud. Just say something. Anything. It could be as simple as “How was your weekend?” to “What is costing your energy right now?” to “Ready?” What you’ll notice is that it doesn’t matter so much what the question is as it does for each participant to say something out loud. For example, I was facilitating a workshop this week and after the group returned from a short break I asked each person in turn, “Are you ready to continue?” One participant responded, “No, I’m not. I just got a really bad phone call about a deal I was trying to close. I’m devastated.” He sat there for a few more moments, then he said, “OK, now that I cleared that out loud, I’m ready to go.” Speaking out loud will always help to shift energy in a person and bring more presence to the task at hand.

Getting Initial Buy-in to the Problem or Opportunity

In addition to unfreezing the group, you’ll want to help set the stage by ensuring that the group has a unified vision of what it’s trying to accomplish. I recommend that you tie the desired outcomes for the team and/or project into the personal desired outcomes of the individual participants. One way to do this is to simply ask each person, “What is the desired outcome for this meeting (or this project) for you personally?” and write down his or her response. Then once each person has had a chance to state his or her desired outcomes, make sure that all the desired outcomes are aligned and attainable and if not, address them up front accordingly. “This one seems out of scope for this particular project. What do you guys think?” Once you’ve got alignment on desired outcomes, people should be clear and eager to dive into the process.

The reason I suggest you ask participants about personal desired outcome is that, when we have a personal interest in something, we’re much more engaged in attaining it. Often people show up to a meeting with no clear idea why they are there in the first place. By asking “what’s in it for you?” you’ll help them to reflect on and clarify what any potential rewards may be. “Hmmm, you know, I’d like to learn more about how XYZ works.” Or, “I’d like to be part of a kick-ass team that really produces results.” If a person has no personal desired outcome related to this meeting and/or project, it’s a sign that they probably shouldn’t be in that meeting.

Running Efficient and Timely Meetings

When it comes to setting expectations on time management in the decision-making process, here are some guidelines. Most of the time spent in decision making is invested in Steps 1 to 3 (Setting the Stage, Gathering Data, and Generating Insights). Once this is accomplished, it’s pretty straightforward to complete Step 4 (Deciding What to Do) and Step 5 (Assigning Action Steps for Implementation). A general rule of thumb is to invest 80% of the time in Steps 1 through 3 and 20% of the time in Steps 4 through 6. That means in an hour-long meeting, 42 minutes would be allocated to setting the stage, gathering facts and generating insights and just 18 minutes to deciding what to do, assigning action steps, and integration. If you feel that 18 minutes is not enough time to decide what to do, assign action steps, and integrate, it’s a clear indication that you’ll need to schedule a longer meeting. But don’t skimp on the first three steps. That’s where most of your time investment should occur. If you do skimp, it will come back to bite you through poor decisions and flawed implementations.

My grandfather used to say that the mind can only handle what the seat can endure. Speaking as a person who has a hard time sitting long periods, I concur. My favorite way to handle this is to run 75-minute team sessions with a 5 to 15 minute break in between. This allows enough time for the group to make meaningful progress. At the same time, it allows the group enough space and personal freedom to restore the body, check their email, make a phone call, etc. Get agreement from the group up front about the time frames in which you’ll run sessions and breaks. This will allow participants to focus on the task at hand.

Just a couple of words of advice. You need to be disciplined in time and flexible in process. This means that there will be occasions when you need to spend more time in one part of the process than you were anticipating. But remain disciplined in time. When it’s time to break, break. When it’s time to wrap, wrap. Also, make sure to unfreeze the group when they come back from a break or start a new session. The team needs to proceed through the process as one unit. Once the stage is set, it’s time to move into Step 2: Gather Data.

Step 2: Gather Data

Gathering the data means collecting all the facts and perspectives in the room on the issue at hand. If you don’t take the time to gather all the facts, the group is going to miss the full picture and make a half-baked decision. Each person will see the problem in a different light and no agreement will be reached on what the core issue really is.

Here’s an example to show what happens when you skip gathering data. Imagine a technology company that is experiencing a 10% reduction from the previous quarter’s sales. Alarmed, the board of directors asks the CEO to identify the problem and present a solution at the next board meeting. The CEO gathers the VP of Sales, VP of Marketing, CTO, and CFO in a conference room and says, “All right. We’re down 10% this quarter. The board wants answers. What are your solutions?” This approach to problem solving is a disaster in the making. It’s not the right way to make good decisions at all. Why? Because the leader skipped gathering data as a group and, as a result, each individual in the room will have a divergent perspective and conflicting interests and styles that never get reconciled.

In this scenario, the VP of Sales, who’s a hard-charging, task-focused type (Psiu) will likely point the finger at marketing: “We’re not selling because we’re not driving enough inbound leads. Get me more leads and we’ll sell ‘em!” The VP of Marketing, who’s more of a creative, big-picture type (psIu), will point the finger at technology: “We’re not selling because the product features we’ve been requesting are six months behind schedule!” The CTO, who likes to keep things nice and stable (pSiu) will point the finger back at marketing and sales: “We’re not selling because the business side keeps changing requirements in the middle of our production cycle!” And the CFO, who prefers to keep the drama low (psiU) will respond with, “We’re not selling because there’s too much infighting!” After an hour of fruitless discussion, the CEO throws up his arms in exasperation, makes a rushed set of decisions, and barks out his orders for the team to follow. The executive team all nod their heads in agreement, but inside they’re thinking, “Oh boy, here we go again. Another half-baked plan that’s not going to get us anywhere.”

What should have happened? The group should have first gathered data on multiple aspects of the problem. For example, what is the economic growth rate during that quarter? What are competitive sales figures? What is the client satisfaction rating? What facts do sales, marketing, technology, and finance have that can add clarity to the picture? Stick to data gathering here. Don’t dive into solutions yet, no matter what. When someone tries to go for the solution (and they will) stop them: “We’ll get to solutions in a bit but let’s first make sure that we have a full picture. Let’s keep gathering information.”

What happens if you don’t have the data you need? Go get it. Break the meeting. Assign action steps for people to come back with good, clean data as soon as possible. Set a new meeting to continue with the information the team needs to make a good decision.

There are two reasons that gathering good data from the team is so critical. The first is that good information is like a light in the darkness. Change constantly alters reality – and the faster the change, the harder it is to see and understand what’s happening and adapt to it. What was a good decision last year/month/week/yesterday may no longer be a good decision now. People change, markets adapt, situations alter, and technologies disrupt and get disrupted. Good information makes it possible to manage all this because it allows you to better understand and respond to each of the phases you’re moving through. It reveals what’s really happening now and provides insights into what might happen next.

The second reason to gather data as a group is that each person brings a different perspective to the table. Without a shared “data-base” each person is going to operate as if their perspective were the right one, thus missing key elements of the situation. If, however, the entire team can all agree that “yes, this is the data and we believe it’s correct and comprehensive,” that opens the door to new perspectives and a coherent understanding of the situation. It’s a good shared data set that leads to the next step, Generating Insights.

Step 3: Generate Insights

Now that the team has the data and can agree on the facts, it’s time to leverage the collective wisdom of the group to generate insights. What might be causing these facts to occur? What are the underlying causes and what are the symptoms? It’s important to get all the perspectives on the table before deciding what to do. Stimulate an environment of curious exploration versus blame and finger pointing. In the previous example, one insight might be that there’s poor coordination between development and customer requirements. Another might be that sales are down because the economy tanked. It doesn’t matter at this stage which insights are correct, only that the group is collectively generating insights based on a shared set of facts.

Step 4: Decide What To Do

If the group has gone through a process of setting the stage, gathering the facts, and generating insights, now is the time for the authority in the room to decide what to do. Good decision making is not a democratic process; it’s a participative process. By creating an environment of authentic group participation, the person who is responsible for having the decision implemented must now make it. Because those with power and influence over the implementation have been given the opportunity to have their voice heard, they should stand behind the decision. It does not mean that the decision will make everyone happy, but it does mean that the team now needs to back whatever decision is made. After facilitating over 100 group decision-making processes, I have yet to witness the ultimate authority make a decision that is at odds with the group. It’s not that the authority is afraid to make a hard decision; rather, it’s that everyone involved has reached the right decision together. When this occurs, it’s actually pretty easy and fast to move ahead towards implementation.

Step 5: Assign Action Steps

Now that a basic decision has been made, it’s time to assign action steps and amp up the time pressure on the implementation. In simple terms, the group needs to identify what to do, who is doing it, and by when. You’re setting clear deliverables, clear dates, and unarguable accountability to execute on that decision. In this part of the process, there may be a slight give and take between the authority in the room and those charged with performing different aspects of the implementation. Arthur Authority asks, “Frank, when do you think you can complete the XYZ analysis?” Frank replies, “I need to do a little research and speak with Marge. I’ll have it to you by next Friday.” If this is amenable to Arthur’s needs, the action item gets accepted and written down: “Frank to complete XYZ analysis by next Friday.” If it’s not amenable, then Frank and Arthur need to identify ways to change the task or speed the process. Because they’ve gone through the entire process together, both Frank and Arthur are fully aware of the broader implications, needs, and purpose of the action item. Consequently, there’s usually really easy agreement and clarity on action items. And when in doubt, lean towards more time pressure than less.

Compare this to a scenario when Arthur and Frank don’t go through the decision-making process together. In this scenario, Arthur has to get one-on-one time with Frank, explain the situation, and attempt to get Frank to change his schedule and priorities. It’s not always easy to do – and it generally results in a poorer decision and a bogged-down implementation.

Step 6: Reinforce

Reinforcement is essential to a well-run decision-making process. In this final phase, the group reflects on and integrates the process they just experienced and the decisions reached. It’s not a chance to complain, but rather to verbally lock in and commit to the implementation. A simple way to reinforce and close the meeting is to poll the group on their individual experiences during the process, as well as their views on how to improve it or how to support the implementation. The authority in the room is the last person to speak and then the meeting is closed. The end result is always better decisions and greater buy-in for the implementation. If not, it’s a clear indication that the requisite level of authority, power, and influence weren’t in the room, that there was a breakdown in the process, or that there’s a greater underlying misalignment at the level of vision and values or structure.

Executing on Short-Range Tasks vs. Long-Range Business Development

Just as there is a particular rhythm to follow for effective decision making and implementation, there’s a particular rhythm for managing business needs between short-range execution and long-range business development. From the article on organizational structure, you’ll learn that short-run needs always overpower long-range ones. You therefore need to create an organizational process that allows for effective long-range planning and development combined with short-range execution.

The rhythm goes like this. One to two times per year, a Company Council, represented by the key functional heads and key team members throughout the organization (those 1s and 2s you want to groom for the long term), should gather together off site to set the long-range (one-to-three-year) strategy and to align the organizational structure to support that strategy. The goal of this strategic alignment session is to allow everyone to focus on long-run changes impacting the market and the business and to identify potential improvement areas within the business. It’s important to do this long-range work off site to stimulate a new and broader perspective among the team. Once the long-range strategy is identified, shorter-range goals and outcomes are set, budgets and rewards are established, and the key performance indicators (KPIs) are identified for each business function.

Armed with a common long-range strategy, clearly defined authority and accountability within the structure, and defined short-range goals, the core functional heads form into a Leadership Team, led by the CEO, that meets weekly or biweekly on site to review progress, make decisions, and execute the plan. These short-range tactics support the long-range development plan. This shared alignment and dialogue among the Leadership Team allows everyone to stay on the same page, track and adjust performance, and keep the friction low. It should also reduce the total number of meetings conducted each week because, instead of scheduling ad hoc meetings, decisions are funneled into regular Leadership Team meetings where a good decision-making process is followed.

Watch for Signs of Deeper Problems

As you gather the authority, power, and influence over the implementation into the decision-making process, you will be well served to also recognize the signs of organizational misalignment or inertia. If there’s significant misalignment within the organization’s Execution Diamond (Vision and Values, Structure, and People), then your task will be very challenging indeed. Instead, your best course of action would be to gather in the authority, power, and influence to first realign the Execution Diamond. Once that is aligned, you can then attack the problem or opportunity you want to resolve.

Summary

In order to increase organizational momentum, you must make good decisions and implement them swiftly. In order to do that, you have to first gather in the mass of authority, power, and influence over the implementation and reduce the resistance to change. Then a force of change can be applied through an effective decision-making and implementation process and the organization will accelerate quickly in the desired direction. Any time a key decision needs to get made, follow a sound process that begins by setting the stage, followed by gathering the data, generating insights, deciding what to do, assigning action steps, and reinforcing the decision. With the right people in the room, good decision making naturally leads to swift implementation.

Back to Tutorials.


1.The Agile Alliance

2. Ichak Adizes, Managing Corporate Lifecycles, Santa Barbara: Adizes Institue Publishing, 2004.

The Key to High Performing Teams

Great organizations thrive by joining complementary styles.

Growing up, I had a good friend whose dad was very successful. They lived in a gorgeous home on Lake Minnetonka and I was lucky to spend time a lot of time there, hanging out and enjoying their largesse. Among the things I vividly recall about their home was a refrigerator magnet that read, “Behind every successful man is a wise woman.” I remember that magnet because it made my fourteen-year-old self wonder, “Hmmm, is Mrs. B trying to tell the world that she’s equally responsible for all this magnificence?” and “Is it really true that all successful men have a supportive woman behind them?” or “Maybe it’s her way of putting her husband in his place…” I didn’t have the answers then. But looking back, I can see that this message (dated and cliche-ridden as it is) is worth pondering and has implications for marriages and businesses alike.

The Secret to a Successful Marriage

A happy and successful marriage comes from joining complementary styles.

Marriage or partnership is an exemplary opportunity to match and leverage complementary PSIU forces. No one can be predominantly change-driving, change-responding, focused on the parts, and focused on the whole all at the same time. For much of human history, sexual and gender differentiation resulted in men playing the part of PsIu while women played the part of pSiU. That is, men were responsible for bread-winning (P) and strategy or career advancement (I) while women were responsible for organizing domestic life (S) and taking care of children and family (U). In short, the left side of the PSIU chart shows the classic “feminine” functions and the right side the “masculine” ones.

In the United States in the 1970s, when baby boomers shifted to a dual-income family model and women entered the professional workforce en masse, women joined men on the Producer and Innovator (or traditionally “masculine”) side of the chart. The result? Couples started outsourcing their Stabilizer functions to housekeepers, bookkeepers, and organizers and their Unifier functions to babysitters and marriage counselors – all to keep the family together!

Today, as many of us have outgrown long-standing assumptions about gender and marriage, we can see that the point is not about gender roles. Rather, it’s that all four forces must be present for a family – however you define it – to thrive. Specifically, what all successful and harmonious unions have in common is that both partners naturally complement each other. For example, a partner who is a PsIu will tend to harmonize well with someone who is a pSiU. If one partner is naturally externally focused on career innovation and the other is internally focused on domestic harmony and organization, the partnership can really work. If one partner is naturally better able to focus on short-run needs and structures, while the other is better at seeing the long run and creating harmony, that can also really work. Any number of themes and combinations are possible. What matters is that both partners complement the other and (as long as they share love, trust, and respect) they will have a happy partnership.

Compare that to a relationship where both partners are entirely focused on their careers and personal ambitions, while displaying strong Producer and Innovator traits (PsIu). If this occurs, there won’t be enough force organizing and bonding together the family, which will suffer and tend to disintegrate. On the other hand, consider a union where both partners are stable and prudent but prefer to hang out with their friends than develop their careers (pSiU). In this case, the couple will probably have a great social life and terrible cash flow. It takes a complementary team to have a chance at a happy relationship – and both partners must give and take to create a balance.

The Secret to a Successful Business

Highly visible leaders may get all the press accolades but, behind the scenes, there's always a complementary partner/team.

If you pay close attention, you’ll notice that a highly successful and visible business leader usually has a highly capable and less visible complementary partner. For example, Apple’s late CEO Steve Jobs was recognized for his inventiveness, charisma, and uncanny ability to predict the future of technology and anticipate (even produce) consumers’ desires. Jobs was also famous for his blistering attention to product detail. In one oft-repeated anecdote, we hear that Jobs ordered the original iPod dismantled the night before the press launch when he noticed that the headphone jack did not make a satisfying click when inserted. These are classic traits of the Innovator. Jobs was also infamous for his impatience and high work ethic. These are classic Producer characteristics. As a management style, therefore, Jobs coded as PsIu.

Tim Cook was Apple’s COO (now CEO) who, according to most reports, was a perfect complement to Jobs. Cook works at a relentless pace (Producer), is a spreadsheet junkie with ruthless attention to detail on the supply chain (Stabilizer), and is also down to earth, soft-spoken, and good at maintaining relationships (Unifier). As a management style, therefore, Cook is a PSiU. Cook’s production drive met Jobs’ own. They both demonstrated extreme attention to detail, but in different domains. While Jobs was a powerful Innovator, Cook is more of a Stabilizer and Unifier who makes things efficient and smoothes the way with others. Together, they made a powerful complementary team.

According to a 2011 profile by the New York Times, “Their complementary skills have helped Apple pull off the most remarkable turnaround in American business, and made it the world’s most valuable technology company.” The Times also recognized that a huge void would need to be filled when Jobs passed on: “When Mr. Cook is on his own, he will have to compensate for the absence of Mr. Jobs — and his inventiveness, charisma and uncanny ability to predict the future of technology and anticipate the wishes of consumers” (all Innovator qualities).

So while Steve Jobs was celebrated as the world’s greatest CEO, behind the scenes he had a complementary partner and executive team. The necessity of the complementary team gets short shrift in the media, however, which celebrates the cult of the individual. Just browse through any bookstore and you’ll see the mugs of Donald Trump, Bill Bellicheck, Jack Welch, Richard Branson, or the latest guru celebrated with very little mention of their complementary partners who supported their success.

Even business schools promote this cult of the individual leader. Read a popular business book about leadership and it will say something like this: A good leader produces results (P), brings efficiency and systems (S), is able to innovate to changing market demands (I), is a good people person (U), and focuses on the vision and values (U). This is nonsense. It’s a myth. Just because it gets spun as fact in the media doesn’t make it true. The bottom line is that if you want to be successful (and happy), you’ll need to surround yourself with complements. You simply can’t go it alone.

Back to The Management Guide

Next to Getting from PSIU … to Really Good Management


1. Migeul Helft, The Understudy Takes the Stage at Apple The New York Times: January 23, 2011

2. Ichak Adizes, Managing Corporate Lifecycles, Santa Barbara: Adizes Institue Publishing, 2004.

The Secret to Managing Everything

Life exists in patterns


The secret to understanding management is this: Complex adaptive systems (such as people and organizations) must (1) shape and respond to changes in the environment and (2) do so as whole organisms, including their parts and sub-parts. If they are unable to do so, they will cease to get new energy from the environment and will perish.

Intuitively, this makes sense. For example, imagine a family of four. If the family is to survive and flourish, it must shape the environment by getting resources such as money, food, and shelter. It must also respond to the environment, including to changes that are economic, societal, ecological, and so on. At the same time, it must pay attention to the all the parts that make up the family system – things like the act of cooking, cleaning, commuting, paying the bills, and taking the kids to school. It must take into account the different and often conflicting needs of the individual family members. It must also give focus to holistic dynamics so that the family acts like a single, unified whole – for example, making sure that there’s plenty of love, warmth, laughter, support, and nurturing for all of its members.

If the family isn’t able to shape or respond to the environment, or if it loses focus on the parts or the whole, it will quickly run into trouble. If the pattern continues, then the family will disintegrate. Just imagine a family that doesn’t have income, or a family that can’t perform its daily routine, or that can’t respond to new economic changes, or whose members are always fighting among themselves. Obviously, it’s not a family you’d want to be a part of. It is not resilient or adaptive to change. It costs all of its members more energy than they get in return. Such a family is on the precipice of complete failure.

The same is true for every organization. It must be constantly shaping and responding to change while focused on the parts and the whole. Therefore, I am going to classify observable behavior, at its most basic level, as either shaping or responding to change while focusing on the whole organization or on its parts or sub-parts. I call this the Adaptive Systems Model of organizational behavior.

The Adaptive Systems Model of organizational behavior

The dimensions of behavior within the Adaptive Systems Model exist on a relative and time-dependent scale. For example, if there’s a high drive to shape the environment, then at the same time, there will be a lower drive to respond to change. If there’s a high drive to focus on the parts, there will be a lower drive to focus on the whole. You can see this in your own life. Notice that, when the daily pressures and actions of work and life consume you, you’re also not simultaneously focused on the big picture. That’s why you periodically “get away from it all,” go on vacation, or take time out to get a new perspective. Notice too that if you’re busy building a new business, you don’t have the time and energy to respond to all the little vicissitudes of life, family, friends, and so on. As the farmer once said, “there’s a season to sow and a season to reap and they don’t happen at the same time.”

All behavior can be viewed and understood through this basic model. Note that I’m not talking about “good” or “bad” behavior, nor about why something is behaving the way it is – only that it is behaving along these relative dimensions. Now that you have an overview of the basic dimensions of behavior, you can use this framework to reveal some amazing insights into the people and situations you’re attempting to manage and to do it more effectively. Here’s how.

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How Square Went Against Popular Strategic Advice and Won

Square Payments followed a counter-intuitive strategy and so should you.

There’s a popular view among technology startups that a smart business strategy is to build a product that’s designed for the leading industry giant to acquire. It usually sounds something like this: “We’re building the next-generation router that Cisco will need to add to its product line. Our strategy is to build the product, get them to adopt it, and ultimately have them buy us out.” Like a lot of things in life, just because this view is popular, doesn’t mean it’s right. In fact, gearing your strategy towards the leading industry giant is usually dead wrong. Here’s why and how to choose a better strategy.

The Story of Square

You may have heard of a company called Square Payments, Inc. Square is a mobile payment solution company that allows anyone to accept credit card payments using their mobile phone. In just over a year since its launch, the company had nearly $1 billion in processed payments. It has recently accepted an undisclosed investment from Visa, the leading credit card processor. The insider consensus is that, if Square continues to execute its strategy, it will revolutionize how we pay for things in the real world. It could be as disruptive to payments as iTunes was to music. How did this all happen in such a short amount of time?

The story of how Square came to life is a great one. Square was created by Jack Dorsey (Jack also happens to be the co-founder and Executive Chairman of Twitter, but that’s a different story). When you learn the story of Square, it becomes clear that Jack didn’t start out to revolutionize the payments industry. His original goal was much more modest. Dorsey’s former boss and good friend (and eventual co-founder), Jim McKelvey, lost a sale for his hand-blown glass because he had no way of accepting credit cards. The problem was one many people had: the barriers to setting yourself up to accept credit card payments were too high. So Dorsey set about to see if he could create a better system.

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The Pre-Startup Checklist


Before a startup ever launches, you should have a checklist of critical items in place. These items have nothing to do with writing a business plan or forming the articles of incorporation. In line with the old saying “well begun is half done,” without these basic requirements, the venture won’t get off to a successful start. Even worse, ignoring this checklist can lead to your investing a lot of capital, time, and energy – only to find out that you’re doing the wrong thing, with the wrong team, at the wrong time.

The Real Difference Between Startup and Pre-startup

I’m going to define the core difference between startup and pre-startup using a single word: commitment. Commitment means that the entrepreneur and founding team have taken a real risk to make the business happen. They are clearly and unequivocally in. It’s Dodge City or Bust. Without commitment, the venture will remain stuck in pre-startup mode – as an idea that will never be actualized.

For example, I recently had coffee with an old colleague who wanted to talk about his new “startup.” He had written a business plan, registered a domain name, and was seeking advice on raising capital and building the technology. He was still working at his day job, where he planned to stay while building on the idea in his spare time. As we talked, I could tell that what he really wanted was someone with whom he could discuss the idea – to explore it further and get another perspective. He was still just trying it on and not yet fully committed.

You can always tell if someone is committed to a new venture by his or her actions. Have they taken a significant risk such as quitting their day job or putting their own money into it? Are they excitedly and constantly talking about the opportunity? Are people rallying around their cause and vision? These are all great signs of commitment – and that’s when you know you’re in startup mode. With them, a new business can be born and has a chance of success. Without them, you’re still in pre-startup or it’s a non-starter.

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The Stages of the Execution Lifecycle

Keep climbing the mountain


Navigating your company up the execution lifecycle 1 and keeping it in optimum shape is a great challenge. This article will show you how to do it successfully.

The stages of the execution lifecycle become easier to understand with a little pattern recognition. Basically, every business must shape or respond to its environment and it must do so as a whole organization, including its parts and subparts. If it doesn’t do this, it will cease to exist. Recognizing this, we can call out four basic patterns or forces that give rise to individual and collective behavior within an organization. They are the Producing, Stabilizing, Innovating, and Unifying (PSIU) forces. Each of these expresses itself through a particular behavior pattern. The combination of these forces causes the organization to act in a certain way.

The four forces of Organizational Physics.

Just like the other lifecycles, the execution lifecycle exists within a dynamic between stability and development. The basic stages of the execution lifecycle are birth, early growth, growth, and maturity and, from there, things descend into decline, aging, and death. The focus within the execution lifecycle should be to have the right mix of organizational development and stability to support the stages of the product and market lifecycles. That is, the lifecycle stage of the surrounding organization should generally match the lifecycle stage of the products and markets. If it’s a startup, the surrounding organization is the entire company. If it’s a Fortune 500 company, this includes the business unit that is responsible for the success of the product as well as any aspects of the parent organization that influence, help, or hinder the success of the product.

The stages of the Execution Lifecycle.

The surrounding organization should act a certain way at each stage of the product/market lifecycle, as you’ll see below. Note that, when a force is or should be dominant, it will be referenced with a capital letter:

• When piloting the product for innovators, the company should be in birth mode and be highly innovative and future-oriented (psIu)
• When nailing the product for early adopters, the company should be in early growth mode and be producing verifiable results for its customers (Psiu)
• When beginning to scale the product for the early majority, the company should be standardized and operations streamlined for efficiency (PSiu)
• When fully scaling the product for the early majority, the company’s internal efficiencies should be harnessed, as well as the capability to launch new innovations and avoid the commodity trap (PSIu)
• When milking the product for the late majority/laggards, the company should use the proceeds from the cash cows to launch new products into new markets that will in turn progress through their own PSIU lifecycle stages.

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Lifecycle Strategy: How to Tell if You’re Doing it Right

In my previous post, I introduced the product, market, and execution lifecycles and why a successful strategy must align them. Now we’ll take a look at the four key indicators that will tell you if you’re on the right strategic path. The key indicators, which must be taken into account at each lifecycle stage, are Market Growth Rate, Competition, Pricing Pressure, and Net Cash Flow.

Four key metrics guide the timing and sequence of your strategy: Market Growth Rate, Competition, Pricing Pressure, and Net Cash Flow.

Let’s take a visual walk around the figure above and see how the key indicators work. First, notice that when you’re piloting your product for innovators in quadrant 1 you should be in negative cash flow. The total invested into the product to date should exceed the return. The market growth rate should be low because you’re still defining the problem and the solution for the market. Therefore, the competitors within your defined niche should be few both in number and capabilities. Consequently, the pricing pressure will be high because you haven’t defined the problem or the solution, so you have no ability to charge enough money for it at this stage.

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Lifecycle Strategy: Product, Market, Execution Fit

A successful strategy aligns the stages of three lifecycles: product, market, and execution. (E) is new energy from the environment.

Everything has a lifecycle. It is born, it grows, it ages, and it ultimately dies. It’s easy to spot a lifecycle in action everywhere you look. A person is born, grows, ages, and dies. So does a star, a tree, a bee, or a civilization. So does a company, a product, or a market. Everything has a lifecycle.

All lifecycles exist within a dynamic between system development and system stability. When something is born, it’s early in its development and it also has low stability. As it grows, both its development and stability increase until it matures. After that, its ability to develop diminishes over time while its stability keeps increasing over time. Finally, it becomes so stable that it ultimately dies and, at that moment, loses all stability too.

Everything follows a lifecycle that is a tradeoff between development and stability.

That’s the basics of all lifecycles. We can try to optimize the path or slow the effects of aging, but ultimately every system makes this progression. Of course, not all systems follow a bell curve like the picture above. Some might die a premature death. Others are a flash in the pan. A few live long and prosper. But from insects to stars and everything in between, we can say that everything comes into being, grows, matures, ages, and ultimately fades away. Such is life.

What do the principles of adaptation and lifecycles have to do with your business strategy? Everything. Just as a parent wouldn’t treat her child the same way if she’s three or thirty years old, you must treat your strategy differently depending on the lifecycle stage. And when it comes to your business strategy, there are actually three lifecycles you must manage. They are the product, market, and execution lifecycles.

  • The product lifecycle refers to the assets you make available for sale.
  • The market lifecycle refers to the type of customers to whom you sell.
  • The execution lifecycle refers to your company’s ability to execute.

In order to execute on a successful strategy, the stages of all three lifecycles must be in close alignment with each other. If not, like a pyramid with one side out of balance, it will collapse on itself and your strategy will fail. Why? Because aligning the product, market, and execution lifecycles gives your business the greatest probability of getting new energy from the environment now and capitalizing on emerging growth opportunities in the future. (I discussed in a previous post that the goal of any strategy is to get new energy from the environment, now and in the future.) As you’ll see, aligning all three lifecycles also decreases your probability of making major strategic mistakes.

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Opportunity and Capability

It's not survival of the fittest. Success goes to the best adapted.


Every potential business strategy has the same ultimate aim. This is true whether you are trying to sell your business, go IPO, enter a new market, raise venture capital, hire top-notch talent, fend off competitors, manage increasing regulations, win an industry award, or create the next hot startup. It doesn’t matter what the strategy is — the goal is always the same. This goal is also independent of time or context. It’s just as true in recessionary times as it is in boom times. It was true one million years ago and it will be true one million years from now. So what is this goal of strategy?

The ultimate goal of any strategy is to acquire new energy from the surrounding environment now and in the future.

The evidence for this comes from the most fundamental tenant of evolution: adaptation. Before we continue, let me clear something up about evolution. When most people think of evolution they think of Darwin. And when people think of Darwin, they usually recall the term “survival of the fittest.” However, Darwin himself never used that term. Well, that’s mostly true … Darwin only used the term late in his life to refute the notion that success goes to those most fit. Instead, what Darwin made clear is that survival (and prosperity for that matter) goes to those most adapted to their environment. If there’s good adaption or integration with the environment, then the species will flourish. But if the environment changes and the species can’t adapt, it will fail. That’s why you’re reading this – and not some brontosaurus.

Why is adaptation with the environment so important? Because that’s where new energy comes from. Without new energy, a system will perish. For example, if a man is stranded on a desert island, unless he can find new sources of energy like food and water, he’s quickly going to die. Just like a business with no new sales will quickly die.

In Organizational Physics, “energy” is simply a measure of available or stored power. In a business this includes all forms of available or stored power including money, resources, and market clout. Basically, a good definition of energy is anything useful and desirable that can be made productive. In fact, begin to think of your business as an energy conversion system. For example:

Money is really just a form of stored energy. It’s used to make the exchange of products and services (other forms of stored energy) more efficient. But money is just a tool. If one business wanted to trade its pigs for some cows in barter, both the pigs and cows would be similar energy sources too.

Resources include 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. Obviously, every organization needs resources to be successful.

Clout is the influence and good will that the organization has built up over time. Every business needs clout. Great companies nurture and defend the clout of their brand because they know that if they lose it — for example, if consumers lose trust in the brand — then they’ve lost a critical asset or energy source.

Evolution shows us that if the environment has no more energy to give (if the resources are tapped out) and if the species can’t adapt, it will fail. Or, if the species can no longer extract available energy from the environment and if it can’t adapt, it will fail too. This will happen if its capabilities are no longer suited to the environment or the competition is too great relative to the size of the opportunity (this is where survival of the fittest comes in).

The same principle holds true in business strategy. If your company is operating within a growing market opportunity where there’s a lot of customer demand (i.e. there are a lot of potential new energy sources in the form of money, resources, and clout) and if it can efficiently meet that demand, then it will be successful. But if the market needs change, then the company must adapt to meet those needs or it will cease to exist too. The secret to business strategy, therefore, is to use your capabilities to find and maintain integration with growing market opportunities so that your business can get plenty of new energy (money, resources, and clout) now and in the future.

To drive the point home that a successful business is one that efficiently extracts energy from its environment, take a look the top three U.S. companies by market capitalization on October 7, 2011: Exxon (XOM), Apple (APPL), and Microsoft (MSFT). Notice what they all have in common. Each, in its own way, has successfully created its own “ecosystem” to extract more available energy from the environment than its competitors.

Exxon for example, owns or controls every aspect of petroleum production. It owns the wells, the pipes, the refineries, the trucks, the ships, the mineral rights, and the retail distribution. It’s capable of extracting more dollars, resources, and clout out of the petroleum industry than any other competitor. You may hate Exxon as a company but there’s no denying that they are extremely effective and efficient at what they do and their market cap reflects that. Of course if the environment changes — if all the oil and gas runs out, if new green fuels become practical alternatives, or if the the planetary environment changes radically enough from carbon emissions, Exxon will need to adapt or perish. And it must start adapting before it’s too late.

Apple is the same way. Notice how with iTunes, iCloud, iPhone, iPad, MacBooks, and its App Store, as its online and retail distribution channels, it easily extracts new energy from its ecosystem. Once you have an iPhone, you’re now “locked into” the ecosystem and conveniently buy apps from the App Store. If you reflect back on just a few years ago, Apple was out of cash and low on hope while Microsoft was the world’s dominant company. Of course Microsoft built its empire in the 1980s around an ecosystem of desktop computers and the software that runs them. And notice, too, how Microsoft ate Apple’s lunch for many decades but now Apple’s returning the favor. What happend? The environment changed! Apple has become better adapted to today’s environment of elegant design and mobile devices while Microsoft has not been able to adapt.

What About Survival of the Fittest?

This question comes up often enough that I want to address it now. Survival of the fittest is certainly important. It is a measure of how fit an organization’s capabilities are in extracting available energy from opportunities in the environment. For example, imagine two leaders. One is an aboriginal chief in Australia. The other is an executive at Lehman Brothers. Who is the most fit? It depends on the environment. If the banker is stranded in the outback, there’s lots of opportunity to survive and flourish but he just doesn’t have the capability to execute. The aboriginal chief, on the other hand, can enjoy a good life if left in the wild because he’s more fit for that environment. Back in New York, if the environment changes, for example if there’s a financial collapse, the banker’s skills will no longer useful and he or she will need to adapt to new conditions. Adaptation to the environment is supreme and fitness or capability is always secondary.

Not All Capabilities and Opportunities are Created Equal

To get new energy from the environment, a business must use its capabilities to find and integrate with opportunities in the environment. For example, a dentist’s office has capabilities in teeth cleaning and repair, front office administration, marketing, etc. In the surrounding environment are opportunities — people who have cavities or who want a whiter smile and healthy gums. If the dentist office can use its capabilities to attract customers to its practice and produce positive and desired results for them, then those clients will give energy (money) in return. If the dentist is really good, if he or she is able to produce positive and desired results consistently, then it will be easier to get those clients to return and send their friends (more sources of energy). The same holds true for Apple, Microsoft, and Exxon, as well as for a cheetah on the plains of Africa. Success is about aligning capabilities with opportunities.

However, it should be readily apparent that not all opportunities and capabilities are equally valuable. Opportunities exist on a spectrum of growing to shrinking, while capabilities exist on a spectrum of unique to generic.

opportunitycapability

Best: Unique Capabilities with Growing Opportunities
The best strategy is to align unique capabilities with a growing market opportunity, now and in the future (upper right quadrant). If the organization can do this, it will have a very high probability of being successful. Why is this? Well, a growing opportunity means there’s a lot of market demand and new energy sources available. At the same time, the organization has developed unique capabilities where there are few real or perceived practical alternatives.

Let’s go back to Apple for a moment. As I mentioned before, there’s a growing market need for people to be mobile, connect with others, and have access to media and information at their fingertips. There’s a big need and thus a big opportunity. And Apple has developed capabilities in vision, execution, product design, integrated hardware and software, global supply chain management, marketing and branding, and so on. Because Apple’s capabilities are aligned with the current market opportunity (and because there are few practical alternatives to what Apple provides and how well they do it), Apple is incredibly successful right now.

Tolerable: Unique Capabilities with a Shrinking Market Opportunities
A less successful strategy is to align unique capabilities with a shrinking market opportunity (upper left quadrant). If you own a market or operate a real or effective monopoly, you can still be successful for as long as the market demand holds. The movie rental chain Blockbuster is a good example. They had unique capabilities in movie aggregation and distribution. Even though people were renting fewer and fewer movies, they were able to hang on and be successful for a time. However, environments can change very quickly, as we saw with the shift from rental tapes and dvds to online delivery. Even though Blockbuster had a near monopoly in video rental stores, they went bankrupt because the demand shrank so rapidly. Netflix has been better adapted to the new world of online delivery. But notice too how they’ve been getting a lot of negative publicity lately for their attempts to serve a dwindling market opportunity (people who still want hard disks in the mail) versus a growing market opportunity (people who want to watch what they want instantly online). Netflix knows, just as Blockbuster knew, that they have to make the leap to serve this new, growing market segment or they’ll perish. I’ll explain how you can make this shift later in this series.

Tolerable: Generic Capabilities with Growing Market Opportunities
Another less effective strategy that the first I mentioned is to serve a growing market opportunity with generic capabilities (lower right quadrant). Just like the last strategy, you can make this one work for a time one but it’s not nearly as fun and lucrative as having unique capabilities in a growing market. For example, imagine a family doctor who runs his or her own practice. Health care is a growing market. The doctor has capabilities to diagnose and treat disease. He or she may even be an incredibly talented practitioner with an empathetic bedside manner and a sincere desire to see his or her patients get well. So what? The doctor still struggles to earn a living and pay the bills. Why? Because the market (including customers, vendors, and the insurance industry) views the doctor as just one of thousands of practical alternatives to choose from.

It’s important to point out that it doesn’t matter how unique you think your capabilities are. It’s how the market perceives your capabilities that matters. If there are a lot of perceived practical alternatives, it’s harder to be successful. That’s why in crowded industries the most successful practitioners are those who specialize in one particular discipline. The best brain surgeon for meningioma or the best realtor for high-end homes in 90210. Businesses that successfully differentiate themselves create the perception of unique capabilities and have an easier time of it. That’s why advertising was created. Companies use advertising to try to differentiate themselves from other practical alternatives in the marketplace. To call out what makes them unique and why the market should care. That’s why in a crowded marketplace, the more narrow your focus is, the broader your appeal. And that’s why the saying “perception creates reality” is so poignant. Because it does.

Terrible: Generic Capabilities with Shrinking Market Opportunities
The least successful strategy by far is to be in a shrinking marketplace with generic capabilities (lower left quadrant). If this is you, then you are suffering and you will continue to suffer. There is an ever-decreasing amount of available energy in the marketplace. There’s a free-for-all in competition who fight for the scraps. It’s truly a dog-eat-dog world. Adapt or perish. For example, I knew lots of real estate agents in Santa Barbara during the boom. The environment changed during the bust. Most of them wisely left the industry and attempted to transition their capabilities (sales, networks, contract negotiations, etc.) into other growing industries where there’s greater opportunity. Others who have stuck with it have done so by focusing on a niche: “I’m the foreclosed property specialist” or “I have over 25 years’ experience successfully selling Montecito estates. I’ve been here through booms and busts and I’m you’re agent!”

The Challenge and Opportunity

To recap, the goal of any business strategy is to get new energy from the surrounding environment, now and in the future. The obvious challenge to maintaining integration between unique capabilities and growing market opportunities is the fact that the organization, its products and services, as well as the market conditions are constantly changing. As Darwin made clear, adapting to change can be a life or death struggle. It’s hard to anticipate change, to understand its ramifications, and to adapt in the right timeline and sequence. It’s challenging to acquire enough resources in capabilities, time, energy, and money to adapt successfully. It’s difficult to prioritize between the immediate needs of today and investing in the future.

Don’t underestimate the difficulty of adapting. It is a big challenge indeed. In spite of this, it’s possible and it happens all the time. The name of the game in strategy is keeping your organization tightly integrated with growing opportunities, now and in the future. If you can convert that available energy profitably and make it productive, then you’ll be very successful.

There is a key insight that makes adapting to change and executing the right strategy more attainable. It’s this: all systems evolve in a particular pattern called a lifecycle. By learning to recognize the lifecycle stages of your organization, its products, and the market (as well as the different sets of milestones, challenges, and metrics of each), you can correctly adapt your strategy, in the right time and sequence, and improve your probability of success. We will discuss how to do this in the coming sections.

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