Not-for-Profit Profits

Recently there has been a rash of stories in the newspapers and on radio and TV about the “sudden” recognition that the chief executives (CEOs) and other senior managers of large "not-for profits" (NFP) were being paid an extremely handsome salary, usually plus bonuses.. This uproar played particularly well in Massachusetts, where the Boston Globe regularly runs editorials fulminating about the fact that consultants (hiss, hiss) to the state were getting rich at the public’s expense, by being paid at the “outrageous” rate of $100 per hour. (Full disclosure: I myself am a consultant. If that sets your teeth to gnashing,  feel free to skip the rest of this column.)

But that would be a shame, because the argument is actually quite important, and interesting. It is only secondarily concerned with the high pay per se, but rather is focuses on the question of whether NFP executives and particularly Chief Executives should be paid using more or less the same rationale as for corporate (for-profit) CEOs, which of course leads directly to roughly the same pay and the same type of pay package (including potentially substantial discretionary bonuses).

After all, in comparing the work to be done and the responsibilities of the position, there doesn’t seem to be much difference. As a matter of fact, one could actually argue that the NFP job is more, not less, difficult and exacting because there is usually less flexibility and its boundaries are more open to examination and inspection. People, particularly including all of those affected by its efforts, can see more clearly what is going on, how decisions are made and their potential effects on “me.” And by definition, the rationale for having such a category as Not-for-Profit is to encourage and invest in activities of unusual public value. So, maybe, if anything, their CEOs should be paid more.

But Maybe Not.

The other side of the coin is also quite clear. The original issue began with people entering public service, whether as a clerk in the school or a major political actor. The positive payoff from that was straightforward. People who were willing to devote their efforts to serving society, one way or another, deserved special consideration. This used to include (and sometimes still does) assured employment, the satisfaction of doing something important and recognized, the power to make a difference (not necessarily in one big splash), the esteem of their community, support in times of need, and less likelihood of turmoil in their workplaces.

Actually, there are two “other sides” of this coin. It’s not merely that  NFP workers were more protected and respected, but also that workers in the private workforce took significantly greater risks by doing so. Businesses could and often did fail, those dependent on them suffered, they were also more responsible for a variety of possible damages to the community, and even though their compensation, especially near the top, could be quite high, it could also be quite low – or zero. In both cases, the principle was pretty clear. People on public payrolls got security, private payrolls might get richer. Risks and rewards were reasonably related and clear, and people had a choice. The fact that pay scales in private organizations are largely kept secret is also a source of distortion. How can we be sure the system is fair under those circumstances? We can’t.

The problem is that the relationships between these elements, which were never as sharp as theory hoped, have largely collapsed. We now have a system in which some people are in jobs that are both low risk and high rewards (investment bankers), while most others settle for high risks and low rewards (casual or unorganized workers). The appropriate answer is to begin to revise the employment system and our laws to return to the fairer system. It will take time, but in this, direction counts more than speed.

In Mid-Air

As a practicing consultant for over 40 years, in fields as diverse as technology, community development, innovation, business and organizational change, I've undoubtedly made at least as many mistakes as most people and surely many more than I should have. But I don't seem to be making much progress. Although I've continually been thinking about how to do it better, that list gets longer and longer, for a very simple reason. Every time I examine either what I was just doing or what I'm trying to do, it coughs up a couple of headline problems or errors that I think I should have caught. It would be easy to conclude that I simply hadn't thought things through carefully enough. . In retrospect, I could easily have set up a personal “WikiErrors” site that would list every misstep, slip, catastrophe, etc, all the way to the ultimate unhappy category – the one where I say, “What was I possibly thinking?” I nevertheless still tend to suspect that I should have caught most of those mistakes.

I also know beyond any doubt that I am not alone in this situation. When I talk with colleagues, or participate in on-line groups and exchanges, I discover that the same thing is happening to them and others. We have dozens of magazines and journals, enough “how-to-do-it-better” conferences and workshops to go to a different one every day for years. Most visibly, we have now many social media programs which contain groups devoted to consulting (and virtually every other profession), and many of them, in sites like LinkedIn and Facebook, have tens of thousands of members. I am morally certain that if I (or you) looked at similar files or conferences in the past, I (or you) would find exactly the same complaints and questions. I thought – and I continue to think – that despite an awful lot of talk and writing to the contrary, we don’t seem to be learning much.

But Maybe Not.

There’s another way to look at all this, and it’s pretty much the way we mostly encourage our clients and colleagues to look at their experiences. I have been participating in a number of organizational consulting groups on LinkedIn and I see that virtually everyone using these sites at root agrees with the others. There are some outriders to be sure – some of them are undoubtedly mine – but the thing that stands out is that almost all of us agree, even though that fact doesn’t seem to translate into demonstrated effective action. Why not? How can we be convinced we’re right and yet so wrong?

Here’s how. The discussions among us are both correct and unhelpful because they are addressed at the wrong level; wrong for recognizing the need for action and understanding the characteristics of effective action on that topic or in those circumstances. It is as though we’re in mid-air. We feel as though we’re on solid ground and we act that way, but we’re really not. For example, when someone says “We need to communicate better,” or “We agree on greater communication,” there is usually broad agreement. But, there are no genuine action implications in that statement. I call this “misplaced concreteness” because although it sounds useful and actionable, it is not.

Consider just a few of the options if someone sets out to  follow such a prescription. Communicate how?  Should we write, call by phone, send emails, walk to another office and talk, convene a meeting of everyone involved (and who should that be), walk around and tell “everyone” one at a time? Etc. But these are the realities, these and many other specific possibilities, to say nothing of what the message should be and whether there are expectations as to future behavior. The choice of these and the details of actually following through makes all the difference in the world. So we can all agree that “Better communication is needed,” without at all agreeing on what should actually happen or carried out by whom. We tend to disregard these choices on the grounds that they are trivial, or that we all know what is meant, but these assumptions are emphatically false. The choice of method, the details of execution, the support or reinforcement (if any) that accompanies those actions, all make a great and even deterministic difference. 

When the Wind Blows

We are an organizational society. Every one of us is a member of dozens, perhaps hundreds of them. If you doubt that, think about it for a moment. We belong to political parties and jurisdictions, governmental, business, educational and religious groups and units, families and social  clubs. In all probability, if we did a census, we would find more organizations than people.

There has long been a remarkable lack of agreement about the nature of organizations; what arrangements produce the desired results, how, why and when they work and in particular, what to do if you’re dissatisfied with their character, performance or behavior. Thousands of books and case studies, hundreds of journals, newsletters and magazines, and dozens of university professors, research projects and courses attempt to answer these questions and offer reliable guidance.

Still, even in those disciplines and professions, like management and consulting, specifically aiming to solve those problems, there is near universal agreement that most of the time, even when things work pretty well, we’re not sure why, and when they don’t, we don’t have a reliable way of improving them. All in all, “It’s a puzzlement.”

But Maybe Not.

The island of Martha’s Vineyard, off the Southeast coast of Massachusetts, covers only about 100 square miles, stretching about 20 miles from East to West, and 10 from North to South. Despite its small size, there are consistent and very obvious local differences. For example, there is a striking contrast in appearance of the oaks that cover the island. Those along the South shore are short, bent and sparsely leaved. Along the North shore, in contrast, the oak trees are tall, straight, and thickly leaved. What accounts for these obvious differences?

In a word, wind, which blows more or less steadily, from the Atlantic Ocean across the South shore, losing most of its strength before it gets to the North shore. Continual exposure to it makes a big difference to the oaks in its path. They all start the same way, growing tall and straight, but over time, they bend to fit the wind and they adjust their growth in ways that are unpredictable in detail but very predictable in general.

There are also “winds” in organizations, and they produce similar results. Those winds are the continuing but often slow-acting and unrecognized effects of the organization’s structure, by which I mean not only the boxes and lines on organization charts but everything in the organization that’s left when all the people have been removed from consideration. This also includes, for example, in-boxes, memos, offices, desks and locations, assignments, contracts, reputation, relationships etc.

All of these tangible (non-human) factors create a kind of wind in the sense that their consequences are always developing, they make certain outcomes more likely, and their effects accumulate over time. In the short run, their effects are small, often unnoticeable. As a consequence, deliberate change can be brought about relatively easily in the short run, but is eventually overwhelmed by the accumulated effect of these structural winds.

This is what is generally seen in organizational change initiatives. At the beginning, managers can do pretty much as they wish, but these effects erode after the early adjustments are made. Lasting change requires not only a good beginning and an appropriate direction, but deliberate adjustment of the organizational winds, to encourage the early changes and sustain them in the long-term.

Culture Confusion -- Part 1

There are a number of words tossed around casually but regularly in the world of organizations, organizational change, leadership and management. I haven't made a study of this literature (if that's the right word) but even though I'm not a betting man, I would put a few bucks on the table to bet that "culture" was in the top two or three. It's not just its frequency of use is surprising; the surprising thing is that it's so routinely used as an explanation of behavior in and by organizations. Why do companies do -----? It's their culture. Why is it so hard to -----? Because of their culture. How can we get our organization to ----? Fix their culture.

This has become the word of choice for answering questions to which we do not actually know the answer. Just say it's the culture and everyone will nod in agreement without having any idea in the world about what that means much less what to do about it. (Basically, it is usually defined as "How we do things around here.") Disagreeing with this seems like folly, first because no one much except for me seems to be bothered by this lack, but even more because there really doesn't seem to be a good alternative explanation with which to replace it. After all, we do need answers to those questions. (There is plenty of academic work on all of the above but its value to practitioners and managers is debatable.)

But Maybe Not. I would like to offer one. The word "culture" came into increasingly widespread use because of its importance in anthropology. In that field, it means, by one definition;  "The learned patterns of behavior and thought that help a group adapt to its surroundings." It seemed to make sense to transfer exactly the same idea to business organizations, which Terry Deal and Allan Kennedy did in their 1982 book, "Corporate Cultures: The Rites and Rituals of Corporate Life." This was a very good book, which became hugely influential in the relatively new field.of organizational behavior.

It is now practically impossible to discuss organizations without referring to their culture, and indeed, using "their culture" to explain why people do what they do in an organization, thus substituting one vague concept for another. There is a much better and conceptually more sound alternative word, which was also current at that time but which has gone out of fashion. That word was "climate," and much effort was spent on research to lay out the components of organizational climate and their implications for organizational behavior.

The difference between these two terms may seem trivial or vague, but as they have become used, it is quite fundamental. Culture is an intrinsic property that emerges in and through the organization itself, whereas climate is an aspect or set of properties that exists apart from the organization. We can deliberately create the same climate in another organization, whereas its culture would develop organically and thus inevitably be distinctive. I also prefer the concept "climate" because its substantive measures are immediately sensible and can easily be put to use. To help people become more "engaged" with their work is much harder and less clear than reducing the number of levels of the hierarchy between them and the VP.

CEO Pay -- Part 2

A few months ago, I published a post called "CEO Pay -- Part 1" which essentially concluded that American CEO pay was completely out of whack and that there were better ways. I promised to expand on that assertion; hence, Part 2.

Let's start by looking at what is widely held to be the underlying principle; someone's pay should reflect their contribution. Two things about this deserve noting. One, this isn't only about CEO's, it applies to everyone. Therefore, CEO pay is necessarily related to pay throughout the organization, what we might call the hierarchical distribution of compensation. Two, contribution is not the same thing as pay (and this difference accounts for some of the ire over executive whatever.) The difference is that compensation is the whole package of received benefits, including year-end and other delayed rewards, whereas pay is "only" the dollars employees receive on a nominally guaranteed regular basis. In Part 1 of this post, I wasn't clearly differentiating between these. It would be nice to show that by total contribution, pay across levels is more readily justified.

But Maybe Not. The truth is, it looks even worse that way, much worse. It is instructive to consider what might happen if the CEO, aka the big boss, was missing, even for an extended period. If she's gone and not replaced, there's no hard data to show conclusively what happens, but no business has ever failed because the CEO was out sick or sailing his boat or sitting on dozens of boards, etc. I actually am quite convinced that much good can come when the cat's away. People try things they otherwise couldn't get permission for, meetings are more productive, and so forth.

You can't even claim that the CEO is being compensated for having built the business in the first place; that is rarely the case. CEO's just like other people, come into a going concern and simply pick up and benefit from someone else's work. And of course, when there's a turnover and someone is promoted into the top spot, they are suddenly assumed to have newly acquired magical powers immediately convertible into profits. Why else would their compensation suddenly triple?

Even if you believe that the CEO is fabulous, and some are, though often the turnover is a random event, it's hard to argue with a straight face that the CEO is actually worth 400 times what the average worker gets. And that's not counting all the perks that come with CEO-ness, like a staff of people devoted to your every wish, as much time off as you like, invitations to give the keynote at every large conference in the state. Etc. Of course, one comparison is particularly unhelpful to this American practice. In backward countries like Germany, Japan, Sweden, the UK etc, CEO compensation is perhaps a tenth or so of ours.

All in all. being a CEO is a great gig. Too bad more people can't have a go at it. Maybe picking people at random from the workforce would be an interesting experience. Give them a few days to warm up and I'll bet they'd do just fine.

Seek ye truth?

Some days the world seems to run from one confrontation to another, from small ones in families or between kids in a playground, to large ones between countries or political parties or religions. And being human, we all wish to believe that the things we each believe are true, not just in our view but in some objective sense. And that in turn encourages us to try to convince people that we are right and they are wrong. After all, if we believe that, how can we in good conscience not try to help them see the light. But we don't usually dwell on these differences, or if we must actively disagree, we try to do so in polite terms. Since these things tend to push us apart, we either live in a sort of emotional pressure cooker, we grow a shell or we consort only with others of like mind.

From this point of view, there seems to be only one unequivocal bright spot -- science. Through the tools of science, we claim to know (more) objective truth. The scientific method is one of the greatest accomplishments of humanity. Moreover, it may the only domain of beliefs open in principle to all people, whatever their individual backgrounds, inclinations or opinions. The general support for this standard rests on the practice of experimentation, which requires us to confirm our beliefs -- that is, show them to be true -- by continually subjecting them to tests in which the only acceptable score is "perfect."

Can we really put this much of our faith in science? Is this the way to truth? Maybe Not.

The philosopher Karl Popper, in putting forward this idea thereby gave science the narrowest possible interpretation, shifting attention from the real acts of genius - new and powerful ideas generated by creative minds - to the mechanical process of showing that they have not yet been disproven. But those tests (experiments) may simply show that we may simply be unable to invent experiments that are powerful enough to disprove a given proposition.

Science has always had to deal with experiments that did not produce the expected results. Indeed, that is its real core. Experiments that simply confirm theory are much less important. In drug testing, for example, efficacy and safety trials need to be elaborate precisely because we do not have an adequate hypothesis to explain the link between a drug and a possible result. Double-blind, randomized trials to “prove” a proposition serve as a substitute when we cannot design a true experiment.

But the problem is not in the experimental method; rather, it is usually in the lack of a sufficiently powerful theory linking actions to effects. As Donald Rumsfeld famously said, “We do not know what we do not know.” Einstein’s cosmological theories were towering intellectual achievements not based on new experiments but on a new way to explain existing data and experience. Even today, when we have tested and confirmed many implications of those theories, the core implications may never be able to be tested.

Science is always a work in progress, but at its core is the process of creating and testing hypotheses. The great successes of science have been driven not by a failure of experiments, but by a failure of existing theories to explain the observed results. Science is not about the world; it is about our beliefs about the world. "The truth" is still elusive.

"Watson -- I need you"

IBM rolled out the publicity bandwagon for its newest supercomputer, Watson's, triumphant appearance on a special edition of Jeopardy a few days ago. For those of you who've been either adrift at sea or doing a Rip van Winkle, Watson was "trained" to understand and respond to the colloquial and ambiguous and clues made famous by the TV quiz show, It (he?) soundly defeated Ken Jennings and Brad Rutter, the two highest scoring (human) players in the program's long history.

Technically, the event was everything IBM could have hoped for. Watson interpreted and made sense of normal human speech, even with quirky phrasing, inside jokes and backwards (answers first, then questions) and was therefore a technical landmark of the first order. Presumably, we can now expect to have Watson clones at cash registers, toll booths and phone answering services worldwide.

But Maybe Not. In Jeopardy, one contestant at a time picks a category from those offered, and is given the clue. Their edge is simply that; they can choose the category (and, of course, the amount they wish to bet.) However, any contestant can capture that point by pressing their button first and then providing the correct answer. If they're right, they can continue. If they're wrong, the next contestant can pick a category and try to answer, again by first pressing the button. Watson followed the same rules, with (minor) exceptions for machines..

There are two points that I have not been seen discussed, though they have significant implications for Watson's success. The first is that Watson "heard" the clues delivered in the form of a text file, sent at the same time as Ken and Brad (and the audience) listened to it read..This appears to mean that Watson had the information to "think" about well ahead of its competitors. This may not have been important by itself, but it supported the second and more obvious advantage. Watson was able not only to process the information faster; it also could "push" the button faster -- indeed. more or less instantly.

These possibilities are important because Watson's success involved long runs of answers with no discernible pauses. Part of Watson's edge was perhaps not only because of the quality of its "thinking" but also its speed. If Watson had been programmed to mimic human capacities, it might not have done as well.

Bottom line: Watson is a technical tour de force, no doubt. But it doesn't quite answer the original question, "Can it beat human experts at a game like Jeopardy?" It may still be that Brad and Ken had all the answers that Watson did, but that they were systematically disadvantaged by the mechanical advantages -- not the intelligence -- of any computer. IBM is chock-a-block full of very smart people, so I have to believe that they were perfectly aware of all this, and precisely because of it, playing Jeopardy was a can't lose proposition. Ken and Brad should not feel bad; under the circumstances, I say, three cheers for humanity!