Four Groups

Summary

By making the traditionally intangible aspects of an organisation tangible, managers can benefit from superior information and greater choice. This new perspective combines insights and knowledge that would previously only have been available by chance alone with a comprehensive view of the organisation in question.

Factors that Drive Intangibles

The recognition and subsequent rise in the importance and value of intangibles has been an ongoing feature of management for some time. Examples such as Knowledge Management, Balanced Scorecards (BSC) and Strategic Planning all attempt to quantify and make tangible aspects of an organisation that are initially intangible in nature.

While there are many examples of tools and techniques to make information more tangible, it is also useful to ask why this trend has been put in motion and what advantages are available from it. The three ideas below are by no means exhaustive, but are an attempt to shed light on the factors that drive the importance of intangibles.

• Economics
• Execution
• Experience

The economic aspect of intangibles looks at two main areas. The first is a broad consensus that intangibles contribute to superior financial performance. Examples include linking activities such as brand valuation, human capital and innovation to increased shareholder returns. A second economic aspect of intangibles looks at increasing efficiency and reducing costs through an improved understanding of intangible costs and the factors of production. Activity based costing is one example of this approach and by better understanding the tangible and intangible costs of production[1], it is possible to generate improvements and efficiencies in resource allocation.

The second idea, execution, is perhaps best summarised by the maxim ‘you can’t manage what you can’t measure’. Turning this on its head, one might propose that being able to define or measure an intangible aspect of an organisation makes its control, management and related execution possible.

The third idea concerns experience. In particular, some of our experience as managers is built around the realisation that we directly control very few things. By extension, much of what we manage is intangible[2] and therefore we are best guided by our experience. This idea is perhaps best summarised by Albert Einstein who said, “the only source of knowledge is experience”. By building on and codifying our experiences (where possible), we are able to turn the intangible, tangible and in doing so, we are able to create a larger pool of knowledge from which to draw. Furthermore, as we increase our pool of knowledge, we are able to ask more probing questions about what is currently intangible and seek new ways to manage it and make it tangible.

The Value of Intangibles

Whilst economics, execution and experience may not be the only factors influencing intangibles, when combined, they go some way to explaining the increasingly important role that intangibles play in modern management[3]. Equally, intangibles impact on three key constituents of an organisation, namely its values (cultural and financial), processes (how work is done) and resources (e.g. human, IT, facilities). By simultaneously impacting on the values, processes and resources (Christensen’s VPR framework) of an organisation, intangibles offer new ways to manage and influence aspects of an organisation that are historically very difficult to administer.

The Use of Other Tools

While there are numerous tools and techniques to help manage intangibles, particularly around people, they have tended to focus on discrete parts of an organisation, rather than offering a complete or holistic view. Continuing Christensen’s Values, Process and Resources based view of the firm, it is possible to examine a variety of tools which aid the management of intangibles. With this framework in mind, it is possible see which tools impact on values, processes and resources.

The following table details thirteen management tools[4] and their primary organisational and VPR focus[5].

Tool	Values	Process	Resources
Balanced Scorecard (BSC)
Business Process Reengineering
Core Competencies
Knowledge Management
Lean Operations
Mission and Vision Statements
Offshoring
Outsourcing
Shared Service Centers
Six Sigma
Strategic Planning
Supply Chain Management
TQM

As can be seen from the table above, the tools tend to converge on the process component of an organisation. Equally, while BSC and Strategic Planning do span the three elements of VPR, achieving this coverage from other tools requires them to be used in conjunction or combined with one another.

It is also worth acknowledging that some of the tools could cover alternate parts of the VPR framework, creating a different table from the one above. For example, organisations such as Motorola or GE might well consider that they have ‘Six Sigma values’ as part of their corporate culture. Likewise, it would be simplistic to suggest that offshoring and outsourcing have no impact on the resources of the organisation in question. With these exceptions in mind (and there are more besides), the key consideration for the selections made in the table came from each tool’s area of organisational impact or primary focus.

What about the Balanced Scorecard?

From the table above, it would appear that the BSC and to a lesser extent, Strategic Planning offers the perfect tool for managing intangibles and equally providing a holistic view of an organisation’s values, processes and resources. While it would be wrong to suggest that this isn’t the case, there are some relevant intangibles that the BSC can fail to capture, in particular those associated with the learning and growth perspective.

While it is beyond the scope of this article to present a comprehensive overview of the BSC, there are a few observations that can be readily made, particularly in light of linking together intangibles around values, processes and resources. Perhaps the best starting point comes from Kaplan and Norton’s own writing where they state that “the three principal categories for the learning and growth perspective are: employee capabilities, information systems capabilities and motivation, empowerment and alignment”. What is particularly striking about this extract is how one could quite easily substitute the three constituent parts above[6] for Christensen’s VPR framework. The table below illustrates these overlaps.

In essence therefore, we are back to where we started. In trying to better manage intangibles and in particular those around people, we are left with a choice of tools which focus on discreet parts of an organisation, rather than tools which offer a holistic overview, linking the learning and growth perspective and/or values, processes and resources together.

A 4G Perspective

Given this brief overview of management tools and in particular, the BSC and the VPR framework, there are two potential conclusions that can be drawn. The first is that as we have seen above, BSC and VPR focus on discreet, as opposed to interlinked aspects of people focused intangibles. The second conclusion, as evidenced both by the BSC’s raison d’etre and the diversity of management tools as covered by Bain and others, is that management tools which provide a holistic view, rather than discreet view offer greater value. Building on these two ideas, 4G offers a means of simultaneously analysing the people based intangibles and aspects of the BSC/VPR perspective. At its heart, 4G offers insights into three key areas, namely;

• Understanding individual’s behaviours and personality (Social Profiles)
• The prediction and articulation of relationships (Social Relationships)
• The definition and measurement of culture and values (Social Groups)

The diagram below illustrates how Social Profiles, Relationships and Groups link to VPR ideas.

By understanding and predicting the interlinked roles played by individuals, their relationships and group culture, it is proposed that 4G goes some way to providing managers with new tools and techniques for getting more from their people. Equally, such a perspective offers insights that historically would have only been available by chance alone.

Footnotes and references

[1] This analogy can also apply to transaction costs and better understanding the costs associated with various organisational processes, again with a view to increasing efficiencies.
[2] Examples of intangible factors that are managed on a day to day basis might include; relationships, processes, costing structures and tacit knowledge, amongst others.
[3] By way of example, of the 25 management tools given in Bain’s Management Tools survey, at least 8, or 32% are concerned with the management of intangibles.
[4] The 13 tools are a subset of the 25 tools detailed by Bain at http://www.bain.com/management_tools/
[5] The remaining 12 tools listed by Bain are felt to bypass the VPR framework in that they are a combination of specific technologies, customer management and methods focussed on dealing with the external environment.
[6] Further thoughts on the Balanced Scorecard and attempts at linking and improving the management of the learning and growth perspective can be found in the CIMA and INSEAD paper entitled “Effective Performance Management with the Balanced Scorecard”
[7] For the sake of completeness, one might wish to focus solely on the overlap between alignment and values, but this may be a case of splitting hairs

The financial and cultural values of an organisation often appear to be two separate and distinct entities. However, simultaneously linking and managing them can have a major impact on the success of both strategy and its execution.

Typically, the financial values of an organisation do not mirror the cultural and behavioural values of the organisation. Financial values are the aspects of financial performance that are measured, rewarded and recognised. Examples such as revenues, return on equity, profit margins and share valuations are all included in here. Internal examples include the setting of targets and milestones, while the market may define price levels or influence market share and investors seek dividends or increases in the share price for example.

Contrast the financial values with the cultural values that firms often use in the form of mission statements, desired behaviours and emotional commitment. Such cultural values are highly likely to be defined internally (either deliberately or casually) and take the form of training programs, grading systems or competencies for instance. Ownership of such values may be with the board, HR, or it may lie with a combination of stakeholders. The point of this comparison is to say that often, financial and cultural values are defined and managed by entirely separate and distinct tools and processes [1].

The following example seeks to contrast two airlines [2]. Table 1 below shows a near perfect match between cultural values, as taken from their respective websites. Yet, despite the similarity, Brand 1 is a low cost, short haul, budget airline whilst Brand 2 flies long haul and emphasises their luxurious customer experience. Comparing financial values, differences are in margins, the cost base, customer segmentation, distribution channels and levels of competition for example.

Table 1 – Comparing the Cultural Values of Two Airlines

Why Link Financial and Cultural Values?

If the management of financial and cultural values is typically defined as two distinct and separately owned processes, why would one seek to link them? Ensuring the successful execution of strategy demands that financial and cultural values are aligned and linked. Writing in the Harvard Business Review [3], Kaplan and Norton write of the Office of Strategy Management and that its responsibilities should include; ‘communicating corporate strategy… executing strategic initiatives to deliver on the grand design and aligning employees’ plans for competency development with strategic objectives’.

Moving from the Macro to the Micro

Table 2 – Comparing Financial and Cultural Values

While table 2 shows the contrast between financial and cultural values, the best place to link them is via the various layers of management within the firm. Given different ownership and the need to marry economics with emotions, managers face a multitude of options and decisions. Understanding what each manager values and what they choose to focus on is critical in combining these concepts. Extending this line of thought, the emphasis of the integration must shift from the macro ideas above to the micro world of managers, team members, single decisions and local prioritisation.

The micro world of managers and their teams is the place where strategy meets execution. It is the point that visions and plans become reality. This boundary is very much the ‘coal face’ of the organisation and represents the place where the core activities of the firm are transacted.

We said earlier that many firms employ the Balanced Scorecard or similar approaches. While these do link financial and cultural values (amongst others), their focus is often on the macro aspects of performance. By definition, they struggle to capture and analyse the micro interactions between individuals, teams and mangers for example. As a result, we feel that such an approach can highlight, in the words of Robert Kaplan, ‘a chronic disconnect in organizations between strategy formulation and strategy execution’ [4].

Top-Down and Bottom-Up

With the need to link the financial and cultural values of the firm and the current challenges in linking strategy and execution, perhaps a new perspective may help? Many management initiatives are lead via top-down approach. This is in part to demonstrate ‘senior commitment’ and ‘sponsorship’ but equally, this then creates its own set of problems, as highlighted by the thinking around the Office of Strategy Management.

By way of contrast, complementing a top-down perspective with a bottom-up view of the organisation opens up a series of new possibilities, especially when looking at the organisation from micro perspective and focussing on the ‘coal face’. Not only does this get to the point at which individuals determine the link between finance and culture for themselves but as a management interface, a new series of tools and techniques can be deployed. Such tools seek to simultaneously define, predict and align the financial and cultural values of individuals, teams and departments. While this perspective demands a bottom-up approach, the ability to then link behaviour to the bottom line begins to fill the gaps left by alternative methods.

Clearly, the key to solving this conundrum is to enable organisations to develop a framework within which they are able to reconcile and align the goals of financial performance and cultural identity. Rather than developing a grand plan or unified program in isolation, developing a complementary approach which also tackles these issues on the micro level is far more likely to result in a successful outcome.

Footnotes and references

1. Balanced Scorecard and ‘dashboard’ tools do of course seek to collate numerous organisational variables, financial and cultural values being a part of this. This said, the utility of these tools will be examined in more depth later in the article.
2. The names of each airline were deliberately left out in order to make a more meaningful comparison and emphasise the different financial but near identical cultural values. If you would like to know which two airlines have been used, please get in touch.
3. Robert Kaplan and David Norton. The Office of Strategy Management. The Harvard Business Review, October 2005.
Q&A with Robert Kaplan. The Office of Strategy Management. Harvard Business School Working Knowledge, March 2006.
4. Q&A with Robert Kaplan. The Office of Strategy Management. Harvard Business School Working Knowledge, March 2006.

We’ve just upgraded our blog software to the latest version of Wordpress and hope to start adding some more posts and articles in the coming days.

Systematic HR has an excellent post on HR strategy, both what it is and what it isn’t. While the piece will likely ruffle a few feathers, I think it is interesting to look at the gaps in perception between HR and the business as a whole.

What it basically comes down to is your focus on the business. Each and every task performed should be with your executive team’s strategic business plan in mind. In other words, HR is not strategic when it is not coordinated with the business strategy.

While the above summary is reasonably well understood (or should that be that its been written many times in different forms?!) I still think there is scope to narrow the gap between HR and the business, where such a gap exists. Personally, I think that the use of Christensen’s Values, Processes and Resources, or VPR (diagram here) view of the firm offers people the simplest and most comprehensive means to understand, act on and close the HR/Business gap.

In brief, I think HR has a great claim to two of the three aspects of the above, namely Values and Resources. Talk of culture, missions and values can be owned or significantly influenced by HR. Likewise, Resources is only one removed from Human Resources! This leaves Process and aside from HR processes, having an understanding and making a contribution to this from a HR standpoint is a distinct possibility.

N.B. despite my own enthusiasm for the VPR framework, this page from Google only returns two results!

Thank you to Max Goldman’s blog for the title. We’ve also seen research by Ciampa and Watkins (1999) who claim that 64% of external hires ‘fail to make it in their new jobs’. Max writes;

Apparently, nearly 50% of employees fail in the first 18 months of their jobs. And we’re not just talking about individual contributors, either. Actually, the higher up you are, the more likely you are to fail…

Beyond that, bad managers, personality mismatches and lack of appropriate competencies are all good reasons for why new employees fail.

It’s always been a belief of mine that taking a job (or hiring someone) is like the beginning of a new relationship. There are all kinds of reasons why personal relationships fail. I’m sure we’re all familiar with many of them. Sometimes, even knowing our goals for the relationships is not enough to keep it alive when other parts are missing.

Anyway, on to the possible causes and solutions. We’re particularly passionate to understand why people’s relationships don’t always work out and equally, is it possible to predict them in advance of people joining a new employer or starting a new role? We’ve put together some of our thoughts and a possible solution around this aspect of recruitment strategy on our site.

Reference;
Ciampa, D. & Watkins, M. (1999). “Right from the Start: Common Traps for the New Leader.” Harvard Business School Press, Boston.