Carrot and stick

Interesting reseaarch from the University Of Nottingham School of Economics shows that fines rather than bonuses are more effective in determining workplace behavior. In an experiment involving 100 volunteers, the threat of an inspection and fine by the boss was found to encourage more effort than the inducement of a bonus. Yet most organisations don't use any form of fines or penalities for poor performance. Often poor performance is regarded as a failing of the employer to provide sufficient coaching. High performance organisations use transparent systems of rewards AND penalities related to well defined notions of positive and negative contribution. The transparency of the performance system ensures that penalties are not threatening or demotivational.

SG Warburg

Historian Niall Ferguson’s new book “High Financier”, a biography of twentieth century banker Sigmund Warburg, offers many interesting performance insights about morality and relationships within a market system.

The book paints the picture of a man of vision and intellect who possessed a deep sense of purpose about himself and the organisation he led. That purpose was to be a trusted advisor to leaders of major companies and governments, providing them with expert advice with total integrity. This was his “calling” and Warburg people would share in it. We are told by Ferguson that Warburg “despised making money for its own sake”, and that he lived unostentatiously. This contrasts sharply with the typical modern day investment banker, driven by bonus and deal making.

In terms of the Effectus framework, Warburg’s performance model for his bank was high on Purpose and Reliability axes, an element of Sublimity (apparently Warburg’s employed a full time cartoonist to capture the characters and events of the day) with less emphasis on the type of Combat that we see from financial markets today. The culture, according to those who worked there, was unique and required total commitment.

In commercial terms, SG Warburg was surpassed by others and is now part of City history. Nevertheless, it is worthwhile reflecting on whether the loss of the type of performance that this organisation exemplified, driven by value to the client, independent thinking and integrity of action, is in large part responsible for the dysfunctional, depersonalised financial market system that now dominates our society. The return of a genuinely moral and client service oriented financial services sector is both an opportunity for modern day high minded entrepreneurs in the mould of Sigmund Warburg, and a key component of sustainable future for us all.

Driving business performance

There are four performance dimensions in the Effectus framework: COMBAT (survival); SUBLIMITY (beauty); RELIABILITY (function); and PURPOSE (morality). These four dimensions are primitive drivers of performance – the most basic reasons why anyone does anything. Organisations with a strong orientation to one or more of these dimensions have a clear and powerful reason to exist which, if harnessed to an effective performance system, can deliver great results.

Business, the activity of making financial profits, is not a primary dimension of performance. Money is not an end in itself: it must be used in the service of a performance objective.

Failure to draw this distinction is the reason why many commercial enterprises find it difficult to deliver strong performance from their organisations. Financial targets, market share objectives, Wall Street expectations, etc., don’t motivate people to perform in the same way as a fundamental driver would. Performance in these cases is not a matter of life or death; right or wrong; safety or disaster; beautiful or hideous. Establishing a performance system on secondary, derivative performance objectives is bound to lead to weak performance outcomes and a general question of ‘why are doing this?’ in the minds of people.

All organisations need to get down to the basic performance drivers as the foundation for their performance model. The structures that are placed on top of this will be more secure, and the outcomes more valuable.

Performance in the Big Society

UK Prime Minister David Cameron yesterday announced his vision for the development of a 'Big Society' in Britain involving voluntary groups taking responsibility for delivery of public and community services such as libraries and community facilities. He said it is his mission to create a generation of volunteers.

Encouraging people to take more responsibility for change and to engage in issues affecting their local community has to be applauded. However, leaving aside the practical issues of funding and managing such initiatives, there are also some important performance issues at stake.

In terms of the Effectus Research framework, Cameron is proposing that UK society adopts a 'High Purpose' performance orientation in which performance goals are defined in terms of social and community benefit rather than profit goals or policy targets (as became the norm under the former Labour government). People are being asked to come forward and do things because they care, rather than because they will gain financially or politically.

The key question is whether this vision is reliant on altruism or whether an effective performance system - including strategy, objectives, incentives, penalties and measures, support structures and resources - will also be put in place to help make the vision a reality. As it is, the vision is vulnerable to accusations of being a cost cutting (high combat) exercise in disguise. Doubters also express concern about the scope of initiatives that could be included in the 'big society': for example, most people would probably prefer schools to be ran on 'high reliability' performance principles, with a certain level of central control and expertise, rather than left to voluntary initiative.

The future of this initiative may tell us a lot about how feasible a purpose-based performance model is in the delivery of public services, which may be profoundly important in defining an alternative to the market-based system which is increasingly discredited. Effectus will be closely involved in researching those organisations and initiatives forming the 'Big Society' to capture the lessons learned.

Innovation and performance in sport

The debate about technology in sport seems to be rearing its head again following some controversial incidents at the World Cup. Here are a few loose thoughts on the relationship between innovation, performance and the 'business' of sport.

Innovation in Sport

· Performance improvement is a fundamental feature of both sport and business
· Innovation is key to performance improvement – doing things differently and better, challenging conventions, applying technology, changing business models
· Innovation is normally regarded as a good thing

· However, recent examples in sport and business suggest that innovation is not always good:
- e.g., ‘go faster’ suits at the world swimming championships,
- e.g., global banking crisis caused by innovation in financial products
· Incidents of controversial innovation in sport seem to be happening more frequently – driven by increasing technological and market intensity
- e.g., F1 car innovation; ‘blade runner’ Oscar Pistorius;
· Problems arise when innovation outpaces regulation – in ‘rules or tools’ of the game, in sports or markets

· Yet at the same time changes to rules and tools are used by regulators and governing bodies as instruments to meet their strategic and commercial objectives such as raising participation levels, TV revenues or winning gold medals:
- e.g., the 20/20 cricket format
- e.g., ‘hawk eye’ ball tracking in tennis
- e.g., the investment in equipment innovation by Sport England and Sports Institutes in Scotland and Australia
- e.g., the development of ‘competitive’ regulatory regimes in financial services
· There seems to be a double standard – innovation introduced by the regulator is okay but not when it is a ‘surprise’
· Naturally this is a source of dispute and a potential PR disaster waiting to happen

· Ethical and philosophical questions are also raised by innovation in sport and business:
· When is equipment innovation sporting and when is it cheating?
· Is a performance improvement and ‘win at all costs’ culture good for a company? Is it good for a market system and society? (Post-banking crisis, do we aspire to a different kind of market system – more egalitarian and Nordic?)
· What policies should a company have on performance enhancement, e.g., employees using legal drugs to help them work longer hours?
· Does permitting advanced equipment innovation in sport make is socially exclusive and therefore undesirable?

· These are difficult issues for governing bodies
· Often they are in a ‘no win’ position – criticised for being either too conservative or too radical or simply indecisive
· They need to get in control of the situation and demonstrate leadership

BP Deepwater: a performance disaster

The cause of the BP Deepwater Horizon platform explosion and oil spill has yet to be fully revealed, however, from the information that has emerged from workers on the rig it would appear that a fundamental performance problem was at the heart of this disaster.

The oil industry is a highly evolved example of industrial capitalism. It generates profit at a frightening rate through large scale production, trading and diversified downstream businesses. It is also very focused on cost control. Lord Browne pushed BP’s organisation hard on this component of their business model and his legacy has persisted under current CEO Tony Hayward. From a strategic perspective, BP and the other oil majors have moved to a point in the supply chain where they are more investors rather than hands-on oil producers. In mature fields such as the North Sea, third party companies such as Petrofac operate most of the assets on behalf of BP and others. In the Deepwater case, the ownership and operating responsibilities were complex, involving BP, Transocean, and Anadarko amongst others. BP says that Transocean as the rig owner was responsible for the operation and maintenance of the ‘blow out preventer’ (BOP) that was the key item that failed. Yet BP accepts liability for the outcome and faces potentially crippling losses as a result.

In terms of the Effectus Performance Framework, this looks like a high reliability situation being managed according to high combat performance measures. BP took unreasonable risks with cheaper design options in order to save money and time. Safety should have been the highest priority and dominant performance outcome. Also the lack of clear ownership for the safety environment on the rig meant that potential sanctions were vague and ineffective in guiding performance choices. BP now accepts responsibility for the cost of damages, however, is adamant that it was not solely responsible for causing the accident.

Oil company executives and regulators would do well to consider the typical performance structures in the industry today and the potential risks implied by these on high reliability situations, in order to reduce the chances of a repeat incident in the future.

Why the Labour Party lost the UK election

Listen to Labour Party leadership candidate John McConnell and you will realise why Labour lost the election. McConnell is an old school socialist: he believes that the privatised utilities should be return to public ownership and other such ideas long since abandoned by New Labour. He is passionate about this; he has a vision of a radically different society and he wants you to join him in making this possible. His energy and sense of conviction made me pause and think. Contrast this with all the other candidates: Millibands, Balls, etc. Young, yes: fresh and passionate, no. And there you have it: Labour lost the election because after fifteen years of New Labour it is not clear who they are anymore. They have no strong performance orientation; they are a bit of everything, a party whose strongest card at the election was an anti-Conservative message. Labour needs to rediscover its ideology, in the best sense of that word, in order to regain it's performance.