This is a book about the business of talent. If you are like me, you haven’t been satisfied with the typical approach to the topic. It’s usually pedaled by someone looking to sell you something, and starts like this: “Everything is changing. If you don’t run to keep up you will fail. The cure is: insert the author’s one-dimensional solution here – leadership or innovation or whatever.” It’s positioned as war or a race. This is unsatisfying for several reasons.
First, I don’t buy the assertion that any single thing can certainly improve the performance of any complex system. Although there are counter examples, for the most part that’s not how the real world works: in the paradoxical cooperative/adversarial soup in which each enterprise exists, we and our partner/competitors have solved the more easily soluble, and what remains is the difficult.
But more fundamentally, I don’t believe that our greatest challenge is change. This opinion is not in fashion. I’m not saying we are not in a time of rapid transformation – indeed, the change in the business environment, especially where driven by improvements to technology, is exponential – but I believe the most profound challenges faced by the enterprise do not change. When one thoroughly considers any system, it is possible to perceive enduring truths. In the same way that each river-crossing represents a unique challenge to the bridge builder, while the mechanical laws of bridge building remain constant; the physics underlying the system abide no matter how dynamic the context. Understanding these fundamental truths is a prerequisite to determining what actions to take to deal with any situation, so identifying a response to the changing circumstance without understanding a system’s fundamental nature is at best a waste of time, and at worst a dangerous distraction.
In these pages I will argue that we have been thinking about talent wrong. Fundamentally wrong, at the level of the physics of the system. This is like telling the bridge builder that all of her bridges may fall down because her modelling software employed the wrong formula. Because of who we are, and how organizations are structured, we have framed the problem incorrectly, and as a result we are consistently making bad business decisions.
Our error is manifested in what I call the “standard model.” The standard model makes a handful of assertions that most of us agree with, tacitly if not aloud:
- The purpose of the enterprise is to grow revenue profitably. (I’ll call this the money-is-the-only-value assumption)
- To do this we provide customers for our goods and services they want. (The external-customer assumption)
- We use that money to purchase things like services from other enterprise, facilities, fixed assets, and labor. (The people-are-goods assumption).
- The role of HR is to build and run services that deliver labor to the business at a reasonable cost. (The HR-as-procurement assumption)
The simplicity of the standard model is attractive. It makes it possible to compare every business decision against the criteria of how much money it will make the enterprise, and we have these great accounting systems to keep track of how well we are doing that. I was an evangelist for this way of thinking until several years ago when I began to notice inconsistencies. Like a scientist whose results don’t conform to the dominant paradigm, I found a loose thread, and when I started to pull it, the model unraveled. Each of the assumptions in the list above proved to be either wrong or so incomplete as to be seriously misleading.
To tell this story I have to share something about my discipline of business architecture. Business Architects like myself build models that describe how the enterprise functions; when a company goes through a transformation such as entering new markets or establishing a new route to an existing market, we use these models to coordinate change. The models consider the enterprise whole, as from a great altitude. To achieve this they must be be quite abstract – if such a model were used to describe an elephant, it would work just as well for a mouse, because both have heart, lungs, eyes and so on. These models are nonetheless very rigorous. Like math, they argue back when you try to do something logically unsound.
Here’s how they work: enterprises are too complex to visualize all at once. Business architecture solves this problem by modeling just a few dimensions at a time. One view depicts how the information systems in an enterprise interact with each other to support operations; another view depicts how parts of operations interact to support the customer, and a third view depicts how external customers and partners experience the company. These different views are all linked behind the scenes by a database, so looking at each view is like rotating a cube and looking at different surfaces of the same object.
Of these views of the enterprise, the one that leads, that generates the requirements for the other views, is the view of the external customer. As Peter Drucker pointed out in his essay (reference), “The single most important thing to remember about any enterprise is that results exist only on the outside.The result of a business is a satisfied customer. The result of a hospital is a satisfied patient. The result of a school is a student who has learned something and puts it to work ten years later. Inside an enterprise there are only costs..” This means that customers are outside the enterprise, and the information systems and operations depicted in the other views exist only to serve external customers, and are led by what they want and need. A corollary is that there are no customers inside the enterprise.
In these models, the workforce shows up in the Operations View, which is the view of how things work inside the the enterprise. That’s consistent with the standard model. But when it came time to place the employer brand strategy into the model, the only place it made sense was with all the other brand strategies, which are out in the Business View. But if it belonged in the Business View, then it was facing an external customer. The implication was that somehow the worker was both inside the company as a part of operations and at the same time outside it as a customer. But the standard model assumes that there is only one customer – the customer for the goods and services produced by the enterprise.
I know this must seem like a minor thing. A glitch in a bit of arcane back-office math. And observed in isolation, maybe it would have been. But it lined up with a number of other observations. Why was it that the enterprises for which I have worked felt the need to set up an organization dedicated to employee experience, but then were unable to sustain it because we couldn’t justify the expense? Why would we initiate projects to improve employee experience but then have to construct baroque business justifications that could only be made via wild assumptions? It’s like we were instinctively pulled toward investing in the employee experience, but our logical reasoning (using the standard single-customer model) couldn’t support it. The same thing would happen with efforts to set up a function dedicated to helping employees to move inside the company, and yet every few years we would be compelled try again. But f the employee were a customer those efforts would make a lot more sense. So when I found this anomaly in our business architecture model, it didn’t look immediately like a glitch, it looked like a finding, and it led me to start digging at the foundations of the standard model, starting with the idea of customer.
In the standard model the word “customer” has come to mean narrowly the person who receives the goods and services produced by the enterprise. But what exactly is a customer, and why do we care about them? The word derives historically from “custom,” meaning habit. As early as 1409 it was used to describe a buyer, someone who made a habit of purchasing goods at a particular shop and with whom the shopkeeper had to maintain a relationship in order to keep the buyer’s “custom,” or future business. The etymology of the word captures the attributes of customers that makes them so important: customers exchange value with the enterprise and are free not to. It’s a fragile thing, habit, so the wants and needs of one who forms this custom, the customer, must be cared for.
There is no doubt that employees give something of value to the enterprise – that’s why enterprises pay for them – but enterprises pay to buy capital assets, real estate, IT infrastructure and other goods, and these can’t be considered customers. No, the real clincher is choice. Whereas these other inputs to production are wholly in the control of the enterprise once purchased, employees remain outside the company in the sense that they are free at any time to stop exchanging that value. We, as employees, choose each day, and even each hour, whether or not to continue exchanging value.
When I first came to this conclusion I discounted it. I thought: okay, I accept that, yes, technically employees are customers, but they can’t be nearly as important as the product-customer. Then I did the math. The operating margin at my company is .25. That means that for every dollar we spend on operations, we make a dollar twenty five. So a rough estimate of the value employees give to the enterprise can be estimated by multiplying the cost of the workforce by 1.25. I figure that at my current company, the employee delivers about 18 billion dollars worth of value to the enterprise. That’s just short of our revenue from Asia and Europe combined. It’s a big number. By this measure, not only are employees a customer, they are a massive customer. And this is a low estimate, because it assumes that employees contribute as much per dollar of expense as things like IT infrastructure and facilities, which seems unlikely because of the unique role of people in making the decisions that determine the future of the enterprise. This destabilizes the second assertion of the standard model – the who-is-the-customer assumption.
The next step in my reasoning went something like this: I accept that employees are exchanging value with the enterprise, but they are not exchanging that value in the form of currency and a company can’t survive without money, so the value provided by employees can be discounted. But even as this thought went through my mind, I could see the holes in the reasoning. While it is true that an a enterprise can’t survive without income, neither can it survive without the expertise and labor of the workforce. Both are critical. And when you think about it, if a baker provides bread to a cobbler in exchange for shoe repair, the cobbler is no less a customer just because he’s not paying with cash. This strikes at another core assumption hidden inside the standard model – that the only kind of real value flowing through a company is money. The first assertion in the standard model is that the purpose of an enterprise is to grow revenue profitably; but built into that assertion is the assumption that revenue is the only flow of value that matters. This is the “money assumption.” A more accurate concept would be to focus on increasing the flow of value into and out of the enterprise. What kind of value? Specifically, enterprise-sustaining value. Some of that value will flow in the form of currency, and some it will be something else.
As I advanced along this line of reasoning, part of me still shied away from idea of the employee as customer. At first I couldn’t put my finger on why, but eventually I found the source of my discomfort: I suspected that if I spoke about it in public I would be excommunicated from the Church of Serious Business People. Once you start to take the idea of the employee-as-customer seriously, the world of business changes. The standard model isn’t just an idea, it’s a worldview, and I suspected that powerful people are quite invested in it. I still don’t know how true this is, but in my heart I felt that the standard model is a largely unspoken orthodoxy to which one must pledge allegiance to be accepted by ones peers.
In the next chapter we will explore how the enterprise should be re-architected to accommodate an employee-as-customer perspective. But to do that it will help if I first take few pages to discuss how we got it wrong in the first place.
It’s partially an information problem. When each of us starts a career within a large organization it is as though we are led blindfolded into a building. When the blindfold comes off, we find ourselves in a small white room with a door on each of two opposing walls. Hands reach through one door with raw materials to be processed. Different hands reach through the other door to take our finished product. If we are knowledge workers, the inputs and output are information. As we begin to work, voices through the delivery door yell at us when we don’t perform as they would like. We in turn shout instructions through the receiving door when they don’t provide us with appropriate raw materials. Admittedly, it’s not a great job, but it’s comfortable: they bring us snacks, and it pays the bills. Over time, we make friends with the people next door; we chat about our families and what we did for the weekend. But we have very little understanding of how what we do contributes to the overall output of the larger building.
One day a voice comes over a loudspeaker to tell us that we must do better. This presents a problem on several levels. For one thing, we don’t really understand what the building produces. Not really. Occasionally we receive postcards from people in offices with windows, telling us what they can see. But these communications are infrequent and contain little information, so our understanding of the ultimate output is fragmented and incomplete. We also don’t really understand what goes on in all the rooms between us and the outside, so we don’t know how changes in our work will affect the final product. Our friends in the neighboring rooms don’t know any more than we do; because of these challenges, we don’t really know what “better” is. I call this the “dungeon-entrance problem”. The knowledge gap caused by our limited perspective is filled first by conjecture, which, as it circulates between the rooms transforms into superstition, then myth, then orthodoxy. How we think about talent today is one of these orthodoxies.
To find our way out of this dungeon, we must first understand something about the composition of its walls and the design of its locks. Clearly, the dungeon in this metaphor is not a real physical prison. It is something subtler. Its walls constrain not our physical bodies, but rather our understanding, and it is our minds that must break out.
As humans we inherit sparkling cognitive abilities. Our vision, hearing, smell, taste, and touch are extraordinarily attuned to perceiving and understanding the physical world. Our minds construct from these diverse perceptions an integrated image of the world around us. Take a moment look around you: observe how wonderfully your mind maps sound to source, touch to vision, and effortlessly constructs a 3-D model out of these diverse inputs. And our skill with language is truly marvelous; watching ourselves use language is like watching spider monkeys swing through trees – we exhibit a degree of grace that defines us as a species. But our abilities are custom-built to solve the specific challenges presented by the physical world in which we must survive. And like most purpose-built solutions, they fall short when used to solve for a fundamentally novel environment. Large enterprises present a landscape far more alien and resistant to our comprehension than would any physical prison. This is because the enterprise is invisible, complex, and illusory. Let me address each of these in turn.
Large enterprises are invisible to our eyes. Take the company I serve an example: seventy thousand people spread across more than a hundred countries. If you started traveling right now, you might be able to see all of the buildings over the next six months. But are the buildings the whole of the enterprise? No. I think we have to say that knowledge of the buildings would provide a very shallow and incomplete understanding. You can look at the general ledger, and see numbers representing assets and cash flow; you can stand back and consider the company’s brand; you can look at the complete list of employees, and even meet many of them; you can watch the stock price and read what analysts are saying. Are any of these the company? Even taken all together, I don’t think they add up to the enterprise. And most importantly for our discussion, since we are are examining the question of how to do work better, if you go into one of the buildings and look at people working, what do you see? For the most part you see people talking on phones and typing on computers, but you can’t actually see what the work they are doing. A software engineer looks the same as an accountant, and accountant just like a someone in marketing or HR. It’s impossible to observe directly more than a small fraction of the work being executed by a large organization, much less how well that work is being done.
Large enterprises are also invisible to our minds – by which I mean, they are impossible to imagine. We talk about “the company” as if it’s a thing like any other, but things generally have edges where they stop and some other thing starts. What exactly defines the edges of the enterprise? Again, is it about real estate? Say, the property line of the land on which the buildings sit? Probably not, since many buildings are leased, and much of the work done happens beyond those boundaries. Is it primarily an accounting concept such that all the things owned by the enterprise are on the inside and things not owned are out? That’s a interesting one, since my company is made up of many legal entities, each with their independent ownership, and things flow in and out of that ownership. Is the edge defined by the workforce, such that employees are inside, but contractors out? I have personally never arrived at a satisfactory answer, but I have a working definition: an enterprise is an open system (stuff flows in and out of it while it continues to be itself) unified by common purpose. And it is largely a practical consideration at which level of organization we choose to focus. We can focus just on our team, department, function, company, or the whole ecosystem of partners and and suppliers.
When I say large enterprises are illusory, I don’t mean to imply that they are not real. I’m am employing the first definition of the word: causing illusion, deceptive; misleading. But the illusory nature of large enterprises is less an attribute of the enterprise than it is of we who try to understand them. It seems to be in our nature to be undercorrect and overconfident. Provided with incomplete information about the enterprise, we first construct and then communicate inaccurate mental models. The first step in getting out of the dungeon is to identify and challenge the assumptions baked into those mental models.
Cognitive linguists like George Lakoff at UC Berkeley and Mark Johnson at the University of Oregon have advanced a very compelling argument that metaphor is not just how we speak, but how we think. For example, we understand argument in terms of a metaphor of combat: “your claims are indefensible“, “she advanced a theory”, “he shot down all of my points”, “I demolished his line of reasoning.”. And they point out that when we use a concept like war to think about a concept like argument, we necessarily ignore aspects of the concept that are not made available by the war metaphor. What if we thought of argument as a dance? We would likely plan and conduct debate differently. There are other examples: the future is up and ahead; love is a journey; knowledge is light or vision; ignorance is darkness or blindness; affection is warmth; governance is parenting.
Linguists refer to these metaphoric thinking tools as frames, and they argue that we unconsciously load frames into our working intelligence and use them to interpret, and ultimately to decide how to act, in different situations.
I have an example from my own experience. One of the most powerful lessons I learned as an undergraduate was taught not by an academic professor, but by my dive instructor. He asked all of his students to throw their masks and fins to the bottom of the pool and had us line up at the edge. He then said “Ready, set, go!” and we all dove in to find our gear. It was chaos. People were grabbing gear from each other, one girl got kicked in the face and came up crying, someone else got scratched and was bleeding. I was proudly one of the first to retrieve all my gear. Then our instructor tore us down: “What just happened here?” he yelled. “Are you animals? Tracy was hurt and nobody even noticed. Eric is cut. You were all fighting with each other. Why didn’t you work together? One of you could have gotten a mask at random, and collect the gear for the others.” I burned with shame, and I never forgot that lesson. But it had been a trap; he had deliberately framed it as a competition when he said “ready, set, go” and we had all used that frame to determine how we solved the problem.
False frames are hazardous. No one blunders quite as extravagantly as someone who is wrong by assumption. False models if how the world works gave us witch burning, leaching, and lobotomies, to name a few. Looking back we marvel at the ignorance of these solutions to perceived problems, but closer examination shows that given the frame of the societies in which they were popular, these approaches were mainstream and entirely reasonable. They were established, documented, and authoritative ways of solving for complex situations as they were understood at the time.
The thing about frames is that they are hard to spot once they are loaded; it’s difficult to catch out the assumptions upon which our frames are based because they are baked right into the language. (If my dive instructor hadn’t pointed it out, I never would have though twice about how that competition had turned out.) And a great deal of evidence implying that they are wrong can stack up around us before we start to doubt. In fact, frames are what a confirmation bias confirms. Studies suggest that throwing evidence at the top of the metaphoric stack just hardens peoples position. These positions need to be revised at the level of the founding metaphor.
So, the walls of our dungeon are erected by our limited ability to perceive and think about the enterprise, and the standard model is an attempt fill in the blanks in our understanding. The standard model frames people as inputs to production, not as customers. It also assumes that the only value flowing through a enterprise is currency. When we take the idea of employee as customer seriously, we find that currency is not the whole story.