Tuesday, January 05, 2010

The Commanding Heights of the Enterprise – Part 2 – The information market

Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.
Milton Friedman
I am often troubled when I hear “it is not what you know that matters, but who you know”. It is not because it sounds overtly crass, which it does, but because it tends to make people light up that part of the brain that thinks about career progression. It rarely prompts anyone to consider the quality of the information exchanges around them.

Ensuring that people share what they know with people who should have that information is one of the most difficult challenges for the modern enterprise.

That challenge manifests itself in at least two fundamental ways, in that (1) most people are not naturally motivated to share information about their work and (2) people are often unaware about the majority of colleagues who could be interested in that information.

Corporations spend considerable resources in top-down reorganizations to get people connected in the right ways, succeeding or failing in various degrees: too little sharing and people start to either miss opportunities or duplicate someone else’s work, too much  sharing and productivity crawls to a halt because people are processing gobs of information they don’t actually need.
Organizational network analysis1 (ONA) can point areas of attention to the executive teams and also support restructuring decisions to match the “real” social networks within the company.

Whereas the benefits of such reorganizations are undeniable, and looking past the costs required to achieve these results, it is impossible to ignore that dynamic market conditions tend to constantly shift the ground beneath the newly established networks.

In the free-market workforce proposed in the first part of this series, central coordination and realignment of information flows are made obsolete. The pressure for self-organization around corporate goals requires strong information flows even to establish teams around those goals.

As described in the next section, individual contributions to the information flows are as critical to the success of the individual as they are to the success of the corporation, minimizing the dependency on top-down reorganizations to maintain the social networks aligned with business goals.

On game theory and the information market

Most corporations are a showcase for examples of game theory2, mostly rooted in lack of trust.

In more benign cases you may find a collection of sub-organizations working under a Nash equilibrium occasionally unlocked by shifting market conditions. In a Nash equilibrium, each player makes decisions based on its own assumptions about the equilibrium strategies adopted by other players, often precluding a better mutual arrangement that would require each party to agree on concessions at the same time.

In the worst cases, we often see a corporate-wide tragedy of the commons, where the mutual lack of trust forces each team to work against the best interests of the company.

Either way, if participants in the system could anticipate, rather than assume, each other’s decisions, the gridlocks underpinning Nash equilibriums or tragedies of the commons would simply disappear. In the subtle difference between anticipating and assuming how a colleague will make a decision lies the difference between a successful and a failed initiative.

Documents of understanding can be an effective tool for anticipating decisions, in that parties agree on those decisions beforehand. On the other hand, these kinds of agreements can be somewhat awkward for day-to-day interactions and rather costly for more complex engagements.

Experience in dealing with another party is a far more effective mechanism for anticipating a good outcome. Case in point, while filling a job opening, companies will heavily weight recommendations from other employees over a well-written resume.

A paper trail supplements trust, it cannot replace it.

The trust factor

Over time, in dealing with multiple people inside an organization, you will get to know some people very well. You will have completed successful transactions and established trust. People get used to the comfort of dealing with people they know over dealing with people they don’t.

Over time, these rings of trust tend to become mutually exclusive, end up receiving their own mission, their own budget, and silos are born. In any given company, these closed rings of trust represent the set of Nash equilibriums I mentioned earlier on.

Creating transactions across these rings of trust is what enables the next giant productivity leap for corporations, and is a central tenet of the new organizational model proposed in this series.

When rings of trust are formed around individual business goals, such as winning an account from a key competitor, they tend to be smaller and short lived than when they are formed around broader missions, such as creating a product that can be sold across multiple accounts. NT: The ramified implications of this paragraph alone on how products are developed and marketed warrant their own posting.

In the new organizational structure proposed in this series, everything comes together when Jim-the-salesperson knows that Ned-the-programmer will actually deliver a prototype of a new product for a key account within two weeks and also knowing that Ned’s manager, Bob-the-manager, will not reassign Ned to a different task during the prototyping effort. Jim knows what to expect because Ned chose to work on this prototype and because Bob’s responsibility is to coach Ned into finding his own assignments. It also helps that Ned learned about Jim through a mutual colleague and became a big fan of Jim’s winning streak in key customer accounts. Conversely, Jim had the chance to read quite a bit about Ned’s work when initially contacted.

Compare that fictitious scenario to the parallel universe were Jim drops that prospective US$2 million account and puts his efforts into a US$1 million account where a prototype is not needed and the customer only needs to see a handful of pre-recorded demos. One of the many things separating one universe from another is that in one Jim can partially anticipate Ned and Bob’s behaviors, in the other he may be negatively biased by how much time it would take to become comfortable working with them.

Could Jim-the-salesperson be introduced to Ned-the-programmer and Bob-the-manager upon learning about the US$2 million proposal? Unfortunately for Jim, reading someone’s resume and actually knowing that someone are stages of acquaintance separated by a number of years, which introduces my next assertion:
Trust, beyond an individual trait, is an organizational asset that must be formally structured and managed.
Information hubs, if you build them, will they come?

For a corporation, establishing an information hub where employees can communicate with one another is the single-most important step in spreading the reach of its social networks. Whether that hub is a web 2.0 collaboration platform or a series of bring-your-own-story live events, it is not important, as long as the hub exists and carries the aura of corporate sponsorship.

Then comes a question of motivation, of supply and demand. Why would people want to share information towards the goal of establishing trust with people they don’t know? On the other side of the chain: why would people want to absorb or trust the information provided by others?

On the supply side, looking at a traditional organizational model, where goals are set at the top of the organization charts, I will sidestep the more altruistic motivators, such as the possibility of sharing an experience that may benefit others, and go straight for self-promotion – not to be confused with the empty promotion of skills one doesn’t have3. I will also recognize that even self-promotion is a rather weak motivation when the staffing and corporate recognition happens within the boundaries of departmental and organizational charts, far from the data posted to such information hubs.

Still on the supply side, but now looking at an organization operating under the free-market workforce model, the motivation for sharing the information becomes aligned with the corporate model for organizing teams. People who do not routinely share information about their work will be relatively lesser known than others and will have less flexibility in partnering with people in more desirable projects.

Why listen?

On the demand side, I will start with benchmarking. Benchmarking is a strong motivator for people to compare their own performance against that of others in the company. Once again, a very weak proposition for traditional organizational models, where people are evaluated by their management chain within their local organization boundaries.

There is also the possibility for scouting, or knowing who you can recruit in a hurry when a certain skill or profile is needed. Then again, there is little incentive from a staffing perspective, since management is mostly restricted to staffing teams based on who is available in their own corner of the organizational charts.

Now switch to the free-market workforce model, where benchmarking and scouting are aligned with the business model, where people need to know where they stand in the overall pool of competitors for certain kinds of projects they are interested on. Looking back at staffing, scouting goes from good-practice to necessity since you may find yourself short of a person who will not only be able to contribute the right skill but also be immediately trusted by other people in the team.

A different kind of market

Somehow, the market analogy falls apart for information exchanges. It does not obey the simple laws of supply and demand. High-demand does not drive up the cost for the users, excess of supply does not drive down the value of exchange for information sources. 

Behind the broken analogy is a simple matter: knowledge is not a commodity that changes hands in a transaction, it gets multiplied. The “multiplication versus exchange” concept is fairly old and heavily threaded in leadership classes, but often hard to implement, which is why I like the idea of making the information sharing a necessity for the individual rather than a necessity for the corporation.
Once that new reality sinks in, it is time to introduce the third commanding height of the enterprise:
  • Absent legal limitations – security regulations and privacy laws come to mind - free agents in a micro-market workforce must be able to freely share information about their work with other free agents.
The best communication strategy for any enterprise lies in setting clear standards for what *cannot* be communicated and let free agents exchange everything else. The motivator for sharing information is establishing reputation and trust, and as such must happen continuously and over time.

The greater good as a recognizable entity

While describing the supply side of an information hub, I left out the altruistic motivation of contributing information to strangers who may eventually need it.

In the free-market workforce model proposed in this series, the stronger motivation for information flow within the organization significantly lessens the “stranger” component of the equation. Soon people find themselves sharing their information not only for the acute necessity of being known, but also with the awareness that it may benefit a *recognizable* set of followers, such as people who leave comments on a blog, contribute to the same wiki page, attend a live a presentation and so on.

With the right critical mass of people in the organization, the information market initially established as a tool to connect people becomes a transformational agent.

The market enables people to understand the company through the collective eyes of their peers - based in mutual trust rooted in mutual awareness - further reinforcing the self-organizing, self-directing nature of the workforce proposed in this series.
1 Driving Results Through Social Networks: How Top Organizations Leverage Networks for Performance and Growth by Rob Cross and Robert J. Thomas is an excellent technical read on the topic.
2 From Wikipedia, [game theory] attempts to mathematically capture behavior in strategic situations, in which an individual's success in making choices depends on the choices of others.
3 Summarizing my thoughts about self-promotion in “Office politics, ethics, and the darker shades of gray”, sharing accomplishments is one part bragging rights and three parts corporate responsibility.