To Boost Productivity, Try Smart Simplicity

Welcome to BCG’s business podcast. I’m Simon Targett, editor in chief at The Boston Consulting Group. With me today is Yves Morieux, a senior partner in BCG’s Paris office and head of the Institute for Organization. He’s an expert on how to improve the way companies are run. Yves, managers regularly complain that their number-one challenge is execution—getting things done. Is there any tangible evidence for this?

Every year, the Conference Board, which is a U.S.-based survey institute, asks about six to eight hundred CEOs of global companies what their ten most burning challenges are. And for the last three years, the number-one issue has been execution. This is very surprising because, apparently at least, execution is basic: We used to do A, now I ask you to do B. You don’t need to use your smartness, creativity, intelligence. Just do B!

But this has become very difficult, and it hides two underlying enigmas. The first is what’s happening to productivity. For example, productivity in the fifties, sixties, and early seventies in the European Union grew at 5 percent per annum on average. Then, from 1973 to 1983, the growth rate dropped to 3 percent per annum. From 1983 to 1995, 2 percent per annum. And since 1995, 1 percent per annum at best, on average. We have the same enigmatic trend in Japan and the U.S., except for a temporary rebound around 2000. This is very strange because there are more and more innovations. Why is productivity crawling despite all these innovations? The second enigmatic trend, which also relates to execution, is what psychologists and sociologists call the “work crisis.” In Europe, depending on country and sector, only 10 to 20 percent of the workforce is engaged at work. In the U.S., there is a constant decline in satisfaction at work.

So why are companies seeing both the slowing of productivity, in spite of great technological advances, and a disenchanted workforce?

At BCG, we have measured the evolution of complexity and what we have found is that, from 1955 to 2010, it increased tremendously. We deal with many more performance requirements than in the past. For example, in 1955, there were typically four to seven. Today, we’re talking about 30, 40, 50, 60. Organizations try to respond to this complexity through a proliferation of structures, processes, procedures, metrics, score cards, incentives, committees, clusters, hubs. Basically, they try to respond to complexity with what we call organizational complicatedness. And within this complicated organization, managers can spend 40 percent of their time writing reports and 30 percent in coordination meetings, which means that only 30 percent of their time is left to manage.

So you distinguish between complexity and complicatedness—complexity being a fact of business life and complicatedness being a kind of manmade response to that complexity.

Yes. Complicatedness can be avoided. Complexity cannot be avoided. Complicatedness means that people are wasting their time, because when managers have only 30 percent of their time left to manage their teams, the teams work without proper guidance. They can waste as much as 60 percent of their time on non-value-adding activities. So we understand why productivity is crawling. We understand why execution is such a problem and why disengagement happens. When you cannot get things done because of this spaghetti factory of self-inflicted complicatedness, it is more rational to disengage than to engage. So disengagement is not a psychological issue; it is a rational strategy for dealing with the obstacles posed by complicatedness.

But the way that managers have responded to complexity is, as you’ve described elsewhere, to use the two great traditions of management strategy. Can you describe those two traditions and how your thesis departs from them?

The self-inflicted complicatedness of the organization is what happens when we apply the traditional approaches of management to the new complexity of business. The traditional approaches basically have two legs. The first is the legacy of scientific management—the Taylorian world—what management sometimes calls the “hard” approach to organizational structures, processes, systems, measurement. The other leg is what is sometimes called the “soft” or “human relations” approach. That is, trying to foster performance as a byproduct of good interpersonal feelings, good emotions at work—the informal group. The problem is that these two approaches lead to a proliferation of hard mechanisms, plus the soft human relations approach to grease the squeaky wheels. So it becomes more and more complicated.

You’ve written about the “three Cs” of coordination, collaboration, cooperation. Can you explain a little bit about these and how they relate to those traditions?

The legacy of scientific management is coordinating structures, roles, and metrics—trying to align behaviors by allocating an order of some sort between preexisting activities and goals which are not able to deal with fluidity, the constant renewal and the complexity of performance requirements.

So that’s why you think coordination doesn’t work?

Coordination doesn’t work, because coordination assumes a preexisting order that will never be flexible enough to circumnavigate this complexity. Now,  collaboration is the derivative of human relations: people work together because of good interpersonal feelings. But the problem is that these good interpersonal feelings at some point will prevent people from making the tough tradeoffs needed to deal with complexity. And the better the feelings, the more they they’ll avoid the tough tradeoff of cooperation that could strain these relationships. Cooperation, if you look at the etymology, means to share an outcome. It is not sequential like coordination; it is simultaneous. It is not through a third-party coordinator or supervisor. It is face to face; it is direct, flexible, dynamic, generating new capabilities to develop superior solutions in the face of contradictory needs and more and more numerous performance requirements—which we call complexity.

Let’s assume, then, that companies need to promote cooperation. How can a CEO, a chief executive—somebody who has to execute—go about achieving the cooperation that you think is the solution?

It’s very important to remember that cooperation cannot be decreed. It’s not a matter of structure. Structure can only create interfaces: there’s a problem between the back office and the front office, so we create the middle office. The difficulty with this is that instead of one problem, we have two problems—between the back and the middle and between the middle and the front. This is creating structures, interfaces, instead of cooperation. Cooperation is not a matter of feelings, either. The more you like the other, the more you will avoid the tough tradeoffs to maintain the positive relationship at the root of collaboration. It is not a matter of measurement, either, because you cannot measure cooperation. You can measure the speed of each runner in a relay race, you can measure the speed of the baton, but you cannot measure what makes the difference: the way they hand the baton to each other. Because when I handle the baton in an effective way, it will not make a difference in my measurable speed. It will make a difference in the speed of the next runner. How much is due to his own effort or to the collaboration? It cannot be measured. And it’s not a matter of setting a collective target and saying, “Look, if we win the 400-meter relay race, we will all get gold medals.” That is not enough to win a gold medal. We must be able to make an individual difference, otherwise we will stop making a difference. So cooperation is not a matter of structures, of procedures, of measurement, of feelings. It is a matter of creating a context within which cooperating becomes individually advantageous.

Game theory, as I understand it, says that if you introduce constraints, people begin to cooperate. If you don’t introduce constraints or boundaries, they start to compete.

When I say we need to create a context, we need to shape a context within which the right behaviors, the right solutions coincide with those that people will be naturally led to. What do we mean by context? We mean the problems, the goals that people have. We also mean their resources, what they can use to solve their problems—but also the constraints they are dealing with. So you need to shape these goals, problems, resources, constraints so that the resulting behaviors coincide with those required in the here and now, even though nobody can define in advance what these correct behaviors will be. The power of game theory and the underlying disciplines is to help shape a context that makes good behaviors naturally prevail.

So what does a CEO do to help set those constraints within which people can act independently?

Well, there are two kinds of smart rules. One is about impelling people, the other is about advantaging people. So the first smart rules impel people to use their intelligence. They create feedback loops that directly gratify people when they elicit the right behaviors in the here and now, or that penalize people when they do not elicit the adequate behavior. So the impelling is about incorporating these feedback loops, as directly as possible, into the work situations that expose people to the consequences of their actions. Then there are smart rules that advantage people in the way they use their intelligence. So when people are impelled and advantaged, they naturally find solutions that are superior to those predefined by the alignment, structure, procedures, and systems.

Can you give an example of the two types of smart rules, starting with those that impel?

What I am going to illustrate is the “shadow of the future,” which is one of the three rules that impel. Real case: a company had tried for many years to make top managers develop the new generation of talent. There were incentives and metrics assessing how much training the managers gave to the younger generation and on the quality and the timeliness of their evaluations. Many metrics, but they didn’t work, because each of them had a diluted effect at the end—until the company used the “shadow of the future” approach. Basically it said that nobody could be promoted until they had proposed two potential successors. So you see, people were exposed to the consequences of their actions. If you want to be promoted, you have to develop successors. And in developing the next generation, managers were able to make the best tradeoff based on the kinds of projects that needed to be managed and the capabilities of the new managers that were being developed. And the tradeoffs they were making were of a much better quality than those that could be defined centrally in advance, in the HR department.

And things like productivity went up and people felt more satisfied?

Exactly. Productivity went up and the company avoided the compromise between short-term productivity and the longer-term generation of talent and was able to reconcile these contradictory needs.

What about the smart rules that involve advantaging people?

One of the key smart rules in advantaging is to provide people with the relevant knowledge that they need to work with each other. This knowledge is not about the container, boxes, org charts, structure, process. It’s about giving people an advantage in working together through knowledge of the content of what people do. This smart rule is called “improving the knowledge of others.” It includes being present at the “moments of truth” of cooperation. Cooperation cannot be measured; it can only be observed. And you need judgment when there is no measurement. Unless managers are present and actually see the moments of truth of cooperation, there can be no cognition of cooperation. And when there is no cognition, there is no recognition. So improving the knowledge of others includes knowing what we need to know to work well with others—not in the container, but in the actual content of their work—and also being present in the moments of truth of cooperation.

And do you have an example of a company that has managed to do this?

Yes. A railway company was not able to improve the timeliness of its trains for many years, until it chose this smart rule by identifying the moments of truth of cooperation and making sure the station managers witnessed the moments of truth of cooperation between maintenance, ticket controllers, train drivers, and so on. Because it is in this cooperation, like in the relay race, that you lose time or you are on time.

What is the key message that you would like listeners to take away from all of this?

What we call “smart simplicity,” basically, is about managing complexity without complicatedness, because complicatedness is a root cause of crawling productivity and disengagement. When you remove this complicatedness, you can simultaneously improve performance and satisfaction at work. So the key message is remove rather than add.

Very good, Yves Morieux. Thank you very much.

Thank you.