Personnel Management: Get human resource management right and customers will follow

Taken from: http://www.thinkingmanagers.com/management/personnel-management.php

The more things change, the more they are the same. That old piece of French cynicism certainly applies to management in general, and management of people in particular. Every now and then, maverick companies tackle in revolutionary manner the way in which they treat their workforce. They remain one-offs, even if their ideas influence traditional companies to some degree – and that is happening.

Take the case of St.Luke’s. When this London advertising agency was born in 1995, as a 45-person breakaway from the Omnicom giant, its practices were weird even by unconventional ad-world standards. They went beyond eccentric office design, abolition of personal offices and farming-out activities normally kept in-house. For a start, everybody owned the business equally, from managing director to receptionist – not something that would much appeal in traditional boardrooms whose stock options are massively top-heavy.

Nor was that all. Juniors were encouraged to criticise superiors openly and frankly. This full frontal approach was reflected in the appraisal system, which was both upward and downward. Staff were even involved in deciding their own pay. The system looked outward as well as inward: the business wasn’t organised by function or department, but by customer. The whole structure was animated by a management style that was unbuttoned, unencumbered and loose – and remained so through St.Luke’s subsequent successful career.

Old-line managers might argue that what’s good for a small, fast-growing creative business, full (they assume) of zanies, isn’t good for General Motors. They would be wrong. Many aspects of St.Lukeism are reflected all over the corporate world. At Nestle (as stodgily Swiss a company as ever was), new CEO Peter Brabeck glories in being conservative, evolutionary and not revolutionary. Yet three years ago he ripped apart the Vevey headquarters on Lake Geneva in ways that resonate at St.Lukes:

“Everyone had closed, individual offices. Walking through the halls, you wouldn’t see anything – no people, no products. It was almost like we had something to hide…We made the whole building transparent. We knocked down all the walls and put in glass. People still have offices, but everyone can see each other”.

Brabeck’s reasons are instructive. The modern leviathan, just like little St.Luke’s, wants to put put customers and products first, which can’t be done unless people “see each other and talk all the time” about their products and customers. The CEO told the Harvard Business Review about making individual offices smaller, creating spaces where people could meet and talk. The sixth floor, too, was transformed with a permament product exhibit, tasting kitchens, and a meeting-and-talking coffee-bar.

More revolutionary still, “We went as far as installing rooms like those you would find in the homes of our typical customers…a teenager’s room, with music playing, posters of rock stars on the walls, and candy wrappers on the floor…a kitchen of a small apartment, shared by two people, showing how many of our culinary products are used”. These sober moguls have realised that managers’ own behaviour has a profound impact on how the company behaves towards customers, and have acted accordingly.

The unusual element is the deliberate action, and not the realisation. Focussing on customers and their needs has been preached by every guru and honoured, in the breach rather than the observance, by every major company. Under the pressure of over-supplied and highly competitive markets (few more so than Nestle’s), functional organisations have become obsolete, abandoned in favour of organising round the product. From there, the jump to organising the business round the customer – a satisfied one, of course – is a logical step: but not an easy one.

The difficulty arises partly because there is an intermediate step of vital importance. Commonsense suggests strongly that dissatisfied employees will not create a satisfied customer. Research by Sears, the US retail conglomerate, has discovered that a 5 unit favourable change in employee attitudes towards the company and the job drives a 1.3 unit increase in “customer impresson” which drives a 0.5% gain in sales. So virtue is more than its own reward.

Even without this statistical encouragement, companies have been adopting more progressive policies towards their “human resources”. Upward appraisal St.Lukes style, for instance, is now fairly common, while flat structures are praised as much as hierarchical ones are deplored. Employee (though far from equal) ownership has been encouraged by governments. Few employees below the top influence their own pay directly, but rewards are now commonly linked to individual as well as unit or company results. And you will hear stolid directors speaking in favour of “fun” – creating situations in which people actually enjoy their work.

That’s much easier in a Silicon Valley superstar, like AMD. This microprocessor company, a perpetual underdog to Intel, stimulated its employees to fight the good fight with lavish employee parties, at one of which 4,000 people enjoyed rock bands and lavish food and drink, racking up a bill of $750,000. Fun, indeed. But the lesson is serious and widely followed: if you want to achieve success (and all managers do), celebrate success. Parties big and small are ways in which senior managers can express thanks and encourage further effort – and at the company’s expense.

Celebrations also symbolise the belief that employees at all levels are indispensable contributors to corporate achievement – a fact that has become increasingly relevant and apparent with the rise of the knowledge worker. People (or their egos) need pampering if you depend on their creativity. One software ace, in fact, was considered so indispensable that his employer, hearing that this eccentric genius loathed open-plan offices, constructed a traditional office in the middle of the open floor – just to keep him happy.

Some people dislike all offices. Here the IT revolution has boosted an already growing trend towards letting workers stay at home, at least some of the time. If they can be reached swiftly by mobile phone or e-mail, and linked to their office contents via laptop, stay-at-homes are just as available, but presumably more contented. Back at the ranch, another form of contentment is created by team formation and working – and that, too, has mounted as companies operate more and more by “project management” that identifies team members with specific tasks and rewards.

All these powerful trends have long been backed by the theories of management gurus, ranging from the sage Peter Drucker to the ebullient Tom Peters. Management ractice always lags far behind theory. But practice also runs far ahead of management’s own awareness of what’s rally going on. Thus individual managers led the PC revolution by buying Apple IIs under the pretence that they were typewriters. Similarly, today, companies whose directors have no e-commerce strategies are actually moving towards internet-based platforms. Each small step forward makes blatant good sense: taken together, they will transform management .

You can justify BT’s intranet, if necessary, by its replacement of a hard-copy directory, saving £900,000 annually in printing costs alone. But what value can you place on being able to locate any employee at any time, together with details of his or her work and that of the department? Or on enabling employees at the R&D facility to call up a moving picture of the traffic outside to check whether it’s worth leaving yet? Or showing them how near the next bus is to their stop?

Intranets can, of course, do vastly more important tricks, like giving employees full information about employment and training opportunites. Unisys is only one example of a company which operates an internet (or rather intranet) university. More important still: the internet encourages and facilitates better communication in every direction – upwards, downwards, sideways and outside. E-mail combines with intrarnets, extranets, teleconferencing, etc.to further all kinds of cooperative work and information-sharing. This is the “Digital Nervous System” which Bill Gates uses at Microsoft and (naturally) wishes the whole world to adopt.

That may very well happen, much to the delight of the gurus who have been preaching the case for open-door, open-plan, open-mind management, with flat, democratic structures and shared visions. But would a visitor from the corporate past, a Rip van Winkle who had missed all these goings-on for many years, notice much real difference inside corporate head offices? He would instantly spot the proliferation of PC monitors, of course (and marvel at their relative absence on the most senior desks). But he would quickly find that “command and control” (or “order and obey”) still dominates most cultures, and determines the corporate structure – even physically.

Why, for example, is top management so often and so literally on top? It can’t be because its members enjoy a longer elevator journey to their work on the topmost floor. The traditional locations symbolises supremacy and forces other employees to waste up-and-down time. Honda’s leaders many years ago saw the folly of this tradition, and located themselves in the middle of the building. What’s more, top managers, to facilitate discussion and interchange, all shared round tables in an open office. At Intel, chairman Andy Grove moved quite recently from an office to occupy a cubicle, like everybody else (you can inspect Grove’s 8 ft by 9 ft pad via a 360-degree tour on the corporate website).

Anyone who has read the hard-driving Grove’s books will know that his move wasn’t inspired by soft-hearted democratic notions. He simply thought that the new set-up would be more effective. That’s the true key to what has led business, sometimes slowly, sometimes fast, in the St.Luke’s and Silicon Valley direction: the knowledge that working conditions exert a significant influence on individual and group performance. Just as satisfying employees ultimately satisfies customers, so improving the quality of life at work improves work.

Functional factors sometimes drive in the opposite direction. The returning Rip van Winkle would surely have been amazed by one brand-new aspect of business life: the City dealing room, with its rows of desks, batteries of screens, flashing communication boards and endlessly used telephones. These are the latter-day equivalent of the now vanished “bullpens” – the gigantic spaces where people like insurance clerks worked in long rows of identical desks (the system immortalised in the Billy Wilder/Jack Lemmon film, The Apartment). The dealers almost deserve their astronomical pay for putting up with the dire conditions.

People’s rising expectations of their employers, however, have helped to make paying mere lip-service to the gurus of modern management less and less tenable. When the staid Swiss of Nestle start imitating the wild ways of Silicon Valley, the writing for the old order is plainly on the wall. And a good thing, too.