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Learning, to survive

It was Reg Revans, the begetter of action learning, who asserted that ‘for an organisation to survive, its rate of learning must be equal to or greater than the rate of change in the external environment’. The observation is as pertinent now as it ever was; but apart from a period in the 1990s, when Peter Senge introduced the idea of the learning organisation in his (temporarily) influential The Fifth Discipline, it has never really fired the corporate imagination.

One reason is that it seems abstract and difficult. Senge wants managers to become systems thinkers, for a start; and while children instinctively ‘get’ systems thinking, managers schooled in solving problems by mechanistically reducing them to their smallest components and then putting them together again, just start looking for the exits as soon as it is mentional. Yes, of course it’s necessary to learn, but we’re busy – can’t it wait till tomorrow? As a result the learning organisation is today’s management equivalent of the Higgs-Boson: while its existence is proved in theory, no one has never actually spotted one.

It’s not least of the merits of Donal Carroll’s new book, Managing Value in Organisations (full disclosure: I wrote the foreword), which is shortlisted for the CMI’s 2014 management book of the year award, that among other things it resurrects the problem of learning. Carroll’s contention is that alongside a business model, every organisation, whether consciously or not, also has a management and a learning model. While the three are interdependent, it is the way and degree to which the organisation learns that decides whether it will observe Revans’ law – that is, survives.

Carroll makes the essential and often ignored point that the issue is not one of learning or not learning. Everyone learns at work; the question is what. Unfortunately, in the absence of consciously positive ones the dominant lessons that people pick up in most organisations are negative: how to avoid attracting unwanted attention (not rocking the boat), why change is impossible (learned helplessness), at worst covert resistance (as in the case of the airline pilot who noted, ‘I can raise their costs faster than they can reduce my pay’) – compensatory feedback, in Senge’s terms. In effect these are non-systems-thinking, non- or anti-learning organisations in which individuals learn to survive but not the organisationas a whole.

These learnings are mostly unspoken; their visible manifestation is the cultures of disengagement and apathy that characterise so many workplaces, particularly larger ones. Often non-learning organisations are the result of egregiously flawed work designs. For instance, learning is often linked to feedback. But feedback, as the late Peter Scholtes pointed out, is a systems term, referring to a loop in which one part of the system relays information to an antecedent part (such as customer to supplier) so that the collective function can be improved ie, the organisation learns. By definition managers can’t give feedback in the strict sense because they aren’t antecedent – they are further away from the customer than the frontline worker. This is why in practice targets have such disastrous consequences: being set by managers they impart false feedback that prevents the organisation learning from its proper teacher, the customer.

Paradoxically, while it is thus essential for an organisation to think about its learning model, the most effective one is where, like Monsieur Jourdain in Molière’s The Bourgeois Gentleman who doesn’t realise he is speaking prose, people do it in the course of their job. This happens in production and service designs where the work is closely coupled to customer; iTunes allows Apple to learn about your taste in music, Toyota’s famous production system learns how to build better cars to order, in days.

As Carroll rightly warns, however, the way the organisation learns (if it does) is not independent of its management and business models. By definition, a company that is outward-facing enough to learn systematically from its customers can’t be managed in the traditional top-down command-and-control manner, and the closer it gets to the customer, the more it moves from a business model of ‘push’ (make the product, then sell it by advertising and price promotion) to ‘pull’ (basically making it easy for the customer to take the value they want, as in iTunes).

At a time when arguably the most urgent task for management is unlearning what passes for conventional wisdom, the learning-management-business model frame is thus a potentially fruitful starting point for reexamining many of the perennial business issues around creating energy, engagement and purpose. Carroll scores too by using appropriately fresh new examples – start-ups, social enterprises and public sector institutions – as test-beds for his ideas. As he would be the first to point out, awareness of the models is the start of the journey to make them useful in the daily practice of management, not the end. But if learning in organisations was easy, they would be doing it already. As Einstein is supposed to have said, ‘If we knew what we were doing, we wouldn’t call it research, would we?’

Why skyrocketing share buybacks spell bad news for the rest of us

Share buybacks have reached their highest level since the financial crisis – $450bn in the US over the last year. Many companies, such as 3M, are bumping up dividends too. That’s the equivalent of a deep corporate sigh of relief that it’s back to business as usual – and unfortunately the worst possible news for the rest of us.

Buybacks are Exhibit A in the corporate financialisation that has progressively unbalanced Western economies since the 1980s. They are financial engineering in its simplest form. There is only one reason for companies to buy their own stock, and that is to drive up the share price and return on equity without the tedious business of investing in plant, people or customers. Under current assumptions, this course of action is not only justified but recommended. If, under the efficient market hypothesis, the current share price contains all relevant information about the company’s present and future prospects, then that’s the only thing that managers need to worry about. Being paid substantially in stock, of course, simply redoubles their encouragement to do so (this is the reason that despite all the handwringing executive pay just keeps on going up – that’s what it’s designed to do). Indirectly, share buybacks contributed to the severity of the crash in 2008 and its aftermath. William Lazonick, one of the foremost researchers in the area, found that in the early noughties companies in the financial sector were among the most avid stock repurchasers, often spending more than 100 per cent of their earnings on buybacks and dividends, leaving them with precious little to fall back on when lightning struck. They have been dependent on bailouts and QE ever since.

Buybacks at that level, of course, do not just exhaust the kitty for a rainy day. They are monies the company consciously chooses not to invest for the longer term in the business or the workforce in the shape of higher wages. Thanks to Ed Milliband, falling wages and living standards are now on the political agenda – remarkably, an embarrassing enough problem to provoke even the CBI to call for change (‘In my day’, muttered Vic Keegan on Twitter, ‘unions used to push for higher wages. Today it is employers’). One reason for wage stagnation is the swelling of the reserve army of the unemployed caused by the globalisation of the world economy (there are others, too, which will be the subject of a future article). As Peter Wilby pointed out in a perceptive recent piece in The Guardian globalisation is also a factor in what he terms today’s investment strike which is helping to drive the race to the bottom in salaries and social benefits.

‘Organised capital is more powerful than organised labour,’ he writes. ‘Thanks to the global loosening of capital controls over the past 40 years, investors can take their money where they like. They seek the highest returns. The more that costs such as wages and taxes can be forced down and prices pushed up, the higher the profits and the happier the investors. If they are not happy, the investors will take their money elsewhere.’

For Harvard’s innovation guru, Clayton Christensen, it is the ‘doctrine of new finance’ (ie financialisation) which is behind the investment slowdown that now endangers national competitiveness as well as general living standards. Instead of channelling investment into ‘empowering’ innovation (whole new classes of products and services that create jobs and put capital to productive use) or even ‘sustaining’ innovation (product advances such as hybrid cars), managers are putting such small amounts as are devoted to investment into efficiency gains, which cut the cost of producing existing products and services. Efficiency innovations release rather than use capital and, net, eliminate jobs. If the capital released is not recycled back into empowering innovation to take up the slack, the economy just churns. Sure enough, Christensen calculates that whereas in previous postwar recessions the US economy regularly took six months to get back up to speed, in 1990 it took 15 months, in 2001 39 months and this time five years and counting, even with massive amounts of quantitative easing, one of whose side-effects, according to Manifest’s Sarah Wilson, is ‘printing money for CEOs’ by refloating (and reflating) the economy and stock markets.

Against the incentives pushing in the opposite direction, pleading with companies to raise wages and invest more is about as effective as King Canute ordering the turn of the tide. All the things we’re now seeing – burgeoning share buybacks, the enrichment of the minority at the expense of the flatlining other ranks, dismally low investment and declining rates of innovation – are interlocking facets of the same Rubik’s Cube, all locked in place by a seamless web of vested interest at whose heart lies the ideological assertion that directors are agents of shareholders, whose interests take precedence over all others. Almost everyone in politics is in denial about this, but the puzzle can’t be unpicked without attacking this sacred central tenet. Unless and until it is, a return to ‘business as usual’ will continue to be cause for regret rather than optimism for all except the privileged few.

Happy New Year.

How to reform public services: one person at a time

An extraordinary story is emerging from the public sector. The bad news is that a colossal amount of the money spent on public services is wasted (nothing new there, then). But the good news is that while there is certainly a huge effectiveness issue, despite the endless narratives of doom there is no resource problem. We don’t need to spend more money on the NHS, social care or the elderly, or possibly even housing. In fact, more money may be the last thing the public sector needs.

Getting to this point has been a long learning journey shared by a consultancy, Vanguard, and a number of councils, services and other organisations curious (and brave) enough to attempt something different from the standard industrialised, commodified public service models of today.

The starting point a number of years ago was Vanguard’s use of systems principles to devise a method for improving individual services. The results of creating joined-up services were startling – benefits paid in days rather than weeks, housing repairs done at the time and date specified by the tenant, moving a hospital’s stroke performance from worst to near best, dramatically lowering local crime rates, to name just a few.

But in each case solving the apparent problem revealed bigger ones lurking behind, often outside the individual service’s control. Dealing with people quickly and efficiently in A&E is good, but less so if they shouldn’t be there in the first place. Likewise with petty offenders if they turn up drunk and disorderly again as soon as they exit custody.

In other words, the presenting problem was typically the symptom of another. So services started working with others to tackle the next layer of issues. Learning from housing repairs and benefits helped other separate sub-departments to overhaul housing as a whole. Teams from social services, GPs, physios and others wrought wonders in adult social care, transforming lives with the simplest (and cheapest) of means (better lighting, walk-in baths and showers). And so on.

In all these initiatives, although cost wasn’t the priority and the amount was impossible to predict in advance, overall costs fell as a consequence of providing a service that met people’s needs. The (counterintuitive) lesson is that bad service is much more expensive than good, because of the huge cost of rectifying mistakes and failure. To rephrase the learning (even more counterintuitively): managing cost pushes cost up, while managing value does the opposite.

Why should this be? Like the original NHS, public services were set up to ‘fix’ something: mend a broken leg, pay a benefit. But in a more complex world with ageing populations, the nature of the problems faced has changed. They are no long ‘fix-it’ but ‘help-me’: the need to manage long-term illness or mental health issues, or cope with family break-up, difficult children, poverty and unemployment, for instance.

Using ‘fix-it’ means to solve ‘help-me’ problems is at the heart of the supposed public-service ‘crisis’. Instead of giving people the means to get unstable lives back in order (so they can join the stable majority that makes minimal claim on public services), ‘fix-it’ methods (fragmented, unjoined-up, episodic, delivering centrally specified packages of care) keep them living their instability in an unending loop of public service dependency which never solves their problem. This is the dark secret of public-service waste: the vast quantity of of resource (maybe 50 per cent) that is consumed by the 5 per cent of the population that presents over and over again, often to multiple service doors.

That is a giant step forward in understanding. And it has led to an equally important step in the journey – ‘the most important work we have done in the public sector’, according to Vanguard chairman John Seddon. At a conference in Stoke in October, two councils – Stoke and Bromsgrove & Redditch – outlined a radical ‘whole systems’ approach to public service reform which seeks to use these learnings to guide services not just within traditional sectors but across a whole geography. Bringing together partners including fire, police, health, housing and social services, among others, it aims to understand individuals and families in need in order to fulfill a simple purpose: ‘help me to resolve the problems (that prevent me from living a good life)’.

It’s early days, but operating to purpose and principles, switching off targets, departmental procedures and top-down management structures to do just what is necessary to meet the purpose, pilots in both councils are producing profound results. According to the council chief executives, ‘Citizens previously labelled as “lost” are living good lives, demand on services are going down, and the size of the opportunity to reduce cost is staggering.’ In one pilot in housing (admittedly based on very small numbers), rent arrears, evictions, antisocial behaviour, demands on the NHS, police and justice system were all down compared with control groups; and while the cost to the council increased, overall costs across all the agencies fell. On the basis of the fully costed cases, the overall saving to the public purse in one council would amount to £81.5m over two years.

Just as the failure to solve problems multiplies apparent demand (‘problem families’ are typically well known to police, the NHS, schools and fire as well as social and other council services), the reverse is true: when people get their lives back on track, demand evaporates across all services, including in tantalisingly unexpected areas: stable people are more likely to tackle obesity, smoking and alcohol issues, for example.

Conventional wisdom as incorporated in current service design holds that knowing and understanding individuals can’t be afforded; the lesson of Stoke and Bromsgrove is that knowing and understanding people is the only way that good services can be afforded. As Seddon sums up the learnings so far: ‘Demand is stable (not rising), demands are simple (not complex), we have plenty of capacity (no financial Armageddon), we have an effectiveness problem (not an efficiency problem), and when we provide services that meet needs, we improve. Costs fall dramatically and, most remarkably of all, demand falls. Yes, fewer problems in families and communities – isn’t that what public service ought to be about?’