CHAPTER 7

Principle Five:
Department to Mind-Set

AT A GLANCE

DIVISION OF LABOR HAS been around for millennia. From the ancient Sumerians to Plato to Henry Ford, everyone seems to champion the divide-and-conquer approach. Yet when a complete overhaul of strategic thinking is required, putting the transformation on the shoulders of a few is simply not good enough. The Overfished Ocean Strategy is not a department. It’s a mind-set.

“Well then, how will our state supply these needs? It will need a farmer, a builder, and a weaver, and also, I think, a shoemaker and one or two others to provide for our bodily needs…. So that the minimum state would consist of four or five men.”¹ With these words, written around 380 BC, Plato solidified the division of labor as the cornerstone of our lives—and the central functional principle of any organization as large as a state or as small as a family.

This was not a new invention. The ancient Sumerians, who had preceded Plato by a few millennia, developed and implemented the concept of the division of labor with clear jobs assigned to inhabitants of ancient cities. By the time the word department was first used in 1735,² the modern corporation had begun its slow conquest of the world, growing in size, complexity, and compartmentalization. Dividing the work in the form of clearly marked departments seemed like a perfect idea—so perfect, in fact, that by 1922 the bureaucracy model was hailed as the ideal form of organization. It was Max Weber, one of the greatest sociologists of all time and a specialist on the topic, who elevated the status of the concept:

From a purely technical point of view, a bureaucracy is capable of attaining the highest degree of efficiency, and is in this sense formally the most rational known means of exercising authority over human beings. It is superior to any other form in precision, in stability, in the stringency of its discipline, and in its reliability. It thus makes possible a particularly high degree of calculability of results for the heads of the organization and for those acting in relation to it. It is finally superior both in intensive efficiency and in the scope of its operations and is formally capable of application to all kinds of administrative tasks.³

The highest degree of efficiency, the ability to predict and control results, reliability—no wonder managers of the 20th century took the idea of bureaucracy as perfect and started structuring their companies as perfectly humanless machines. Until the 1990s, it all went well. Then, the magic started to give out a little. Well, a lot.

The collapse of the Soviet Union and Yugoslavia signaled the beginning of a new era of globalization. Then came the Internet, the dot-com crisis, 9/11, the rise of China, the social media revolution, Generation Y, the global economic crisis of 2008—all against the backdrop of rapidly declining resources and the collapse of our linear throwaway economy. As a reflection of the rapid speed of change, a whole new area of business thought was developed—named, appropriately, change management. We did not have much change to manage before the 1990s. Now we do, and the idea of a perfectly controlled bureaucracy made up of neatly stacked departments can hardly coexist with the reality of the rapidly changing world. But somehow, we still live with it.

“This is the job description of a hospital janitor,” begins Barry Schwartz in his February 2009 TED talk titled “Our Loss of Wisdom.” The list presented on a large screen appears to be perfectly unre-markable. Among the items in the job description are all the things you would expect: mopping and sweeping the floors, emptying the trash, restocking the cabinets. Yet one thing the speaker wants you to become aware of: while the items are many, not one of them involves another human being. The janitor’s job at a hospital could easily be done at a mortuary. No difference at all.

Schwartz has been studying the link between psychology and economics (and writing about it for the New York Times) for ages. Now, wisdom is the object of his inquiry. Wisdom among hospital janitors is a striking example.

Consider, for example, the stories of Mike, Charlene, and Luke, all shared in this talk. When psychologists interviewed Mike, they discovered that he had stopped mopping the floors when the patient was out of his bed, walking slowly up and down the hall to build up his strength. Charlene shared that she ignored her supervisor’s demands and did not vacuum the visitors’ lounge, as the family visitors, who spent day after day in the hospital, happened to be taking a short nap. There was also Luke, who told the researchers of washing a floor twice in the room of a young man in a coma. His father, who nearly lived in that room for six months, did not see Luke do it the first time and got angry. It is precisely these little acts of kindness, rather than any items in the job description of the janitor, that bring about huge improvements in patient care and make hospitals better. For Schwartz, these actions are a sign of something much more.

A wise person knows when and how to make the exception to every rule, as the janitors knew when to ignore the job duties in the service of other objectives. A wise person knows how to improvise, as Luke did when he rewashed the floor. Real-world problems are often ambiguous and ill defined, and the context is always changing. A wise person is like a jazz musician—using the notes on the page but dancing around them, inventing combinations that are appropriate for the situation and the people at hand…. And finally, perhaps most important, a wise person is made, not born. The good news is, you don’t need to be brilliant to be wise. The bad news is that without wisdom, brilliance isn’t enough. It’s as likely to get you and other people into trouble as anything else.⁴

Resource intelligence is not an easy-to-follow principle. Line-to-circle thinking cannot depend on narrow functional brilliance. The Overfished Ocean Strategy does not fit into a small box or a department. It requires a whole new mind-set—exactly what Barry Schwartz calls “practical wisdom”—a particular way of looking at the world. And acting on it.

IF I HAD AN hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.

ALBERT EINSTEIN
PHYSICIST

In Search of a Scapegoat

The majority of companies I met got it wrong.

Most of them remain oblivious to the reality of the disappearing linear economy, unable to grasp disparate information and make sense of it in a comprehensive and systemic way. Imagine, for example, that you are a producer of jeans, a product most of us have enjoyed. Who should be responsible for tracking and managing the risks associated with volatile raw materials?

Procurers come to mind first—they are the ones bringing the raw materials in, right? But we all know that procurement simply follows the product specifications and volume requirements, having no power to change anything once the product is developed. Should it be marketing—the sensor of the market? Most companies are focused predominantly on the end consumer of the product or service, trying to either figure out a clear need or develop something we did not know we couldn’t live without. R&D, then? They are the researchers before the developers, so shouldn’t they know the trends related to the prices of cotton, chemicals for jeans washing, metal, or transportation? Yes, but in the case of this product, just like many others, they are designers first, bending the world to their creative vision and not the other way around. I will skip accounting and finance, the first being primarily concerned with the past and the second being obsessed with financing the business model as it is (rather than developing a new one). Who is it, then—a strategist? That seems like a perfect choice—this is, after all, survival, which is an issue of highest strategic importance. So let’s make this poor fella the scapegoat. The problem is that after decades of traditional growth strategy approaches (based on a linear view of the economy, vertical thinking, and traditional planning), there are hardly any strategy professionals capable of fighting this battle as lone rangers.

As a result, obscure but essential raw material might disappear before anyone notices and prepares an alternative. Volatile weather might drive a significant segment of your customer base to any geographical location. Water might become unavailable—or beyond expensive—in a matter of months. The list goes on and on.

THE SEARCH FOR A scapegoat is the easiest of all hunting expeditions.

PRESIDENT DWIGHT D EISENHOWER

But that is not the worst thing that could happen. There are also a growing number of companies that (with the best intentions) responded to the issue of the collapsing linear economy by creating a sustainability department, some even boasting a position of vice president of sustainability. New people are hired (on this sunny August 2012 day, CareerBuilder.com had 1,295 positions) or transferred into the department (usually from PR; HR; or environmental, health, and safety departments), a budget is defined, the chain of command is established. In the majority of cases, such departments have little power and authority within the company. And herein lies trouble.

Whenever I ask executives to imagine an invitation to a company meeting on sustainability, they consistently name it among the most dreaded kinds of meetings to avoid at all costs. They do that for a range of issues we will discuss in the “green is dead” tête-à-tête in chapter 8. But even more so, the avoidance of all corporate sustainability efforts is a natural by-product of the obsessive compartmentalization our businesses seem to suffer from. Dividing our companies into neatly stacked departments—coupled with the speed and intensity of our everyday life—leads to a constant blame game. Marketing blaming production for not fulfilling the orders, production killing marketing for promising what cannot be achieved… Sound familiar? The same scapegoating happens when it comes to a line-to-circle transition, but to a much greater degree. While the overfished oceans remain invisible to most, any work in the area is looked down on as a dreaded fad or time-wasting PR stunt. Most managers find it distracting, irrelevant, and wasteful—an annoying addition to the already overburdened to-do list. “I am busting my butt as it is, have to deal with those idiots in sales, and you are asking me to waste my time on what? Give me a break!”

It is time to move from department to mind-set.

The New Competencies of Knauf Insulation

“Knauf Insulation is pleased to announce that from August 2013, all four of its UK manufacturing plants will be sending zero waste to landfill.”⁵ With over EUR 1.2 billion (about $1.6 billion US) in 2012 revenues and more than 5,000 employees, Knauf Insulation has many reasons to celebrate. After years of work on rethinking its entire strategy and operations, the company has begun to show breakthrough results in navigating the murky waters of the overfished oceans toward a real and inimitable competitive advantage.

Knauf Insulation’s business logic is simple. The slow disintegration of the linear economy offers a number of opportunities across the entire value chain. Why not use it to drive the development of new products, new processes, and new revenue streams for years to come?

On the product side, in recent years, due to pressure from volatile energy prices, the idea of zero-energy zero-carbon buildings (built environments with zero net energy consumption and zero carbon emissions annually) has gained significant traction among legislators and the public. According to Navigant (formerly known as Pike) Research, global revenue from the zero-carbon building market should hit $690 billion by 2020 and will nearly double by 2035.⁶ With a compound annual growth rate of 43 percent, no wonder Knauf Insulation took the zero-energy buildings as its flagship product development effort—launching such products as mineral wool with ECOSE Technology.⁷ The new wool is manufactured from natural and recycled raw materials and is bonded using a bio-based technology free from formaldehyde, phenols, and acrylics—replacing costly artificially synthesized petroleum-based chemicals. It has a natural brown color; no artificial colors, bleaches, or dyes are used in the processing. For installers, the new wool is softer and easier to handle—no annoying itch! For end consumers, the product offers the same insulation benefits as traditional insulation but has a range of indoor air-quality benefits—all while being price competitive. And the company saves a bunch on the raw material efficiency while also offering a product with many additional unique benefits at the same price as mainstream competitors. That is a way to win!

Knauf Insulation is no less resourceful on the process side. At the glass mineral wool production sites, the company developed pathways to reuse both production- and office-generated waste. Baled glass wool waste is reused as raw material by a ceiling tile manufacturer. Mixed-glass wool and related packaging waste is reprocessed for use as bedding for buildings and underground transit. At Knauf Insulation’s extruded polystyrene (XPS) facility in Hartlepool, England, all manufacturing waste is brought back into the production process—general and kitchen waste is picked up by a waste-management partner company. To allow for any excess material to be fed back into the manufacturing process, the company recently built its own recycling facility. To ensure capacity utilization and cost efficiency for raw materials, the company has made agreements with key customers for them to return their waste so that it can be reused, therefore improving the life-cycle performance of Knauf Insulation’s products. Knauf Insulation also found a way to partner with a local community-interest company, donating waste materials such as cardboard to be reused as low-cost arts and crafts resources for community centers, colleges, and schools.

Knauf Insulation is a perfect example of a company using the principles of the Overfished Ocean Strategy—and winning with them. But the question here is not what it does, but how it got there. Anyone who’s familiar with “KI” is aware of the strong imprint of its inspiring CEO, Tony Robson, well supported by his strategic marketing and manufacturing teams.

Was there another department involved?

It turns out, there was. An HR department, to be precise.

A few years ago, I got an unexpected call. Patrice Briol, group HR director of Knauf Insulation, read something about my work in an in-flight magazine (of all places!) and wanted to find a way for us to work together. His take on the issue, however, was rather unusual: instead of focusing on a specific department or function, he wanted to embed new thinking throughout the entire company and use the forces of all HR professionals in the company as a starting point.

After weeks of discussions and e-mail exchanges, we met in Brussels at a gathering of the company’s HR professionals, with great number of executives from other functions joining the meeting. To set the stage and build a business case, Patrice put on a video. No, he was not showcasing 100 ways to turn “green” into gold. On the screen, author Dan Pink was talking about the science of human motivation.

“Contingent motivators—if you do this, then you get that—work in some circumstances. But for a lot of tasks, they actually either don’t work, or, often, they do harm. This is one of the most robust findings in social science, and also one of the most ignored.” On the stage of TEDGlobal 2009, Pink seemed determined to set the record straight.

Working on his 2011 book, Drive, Pink spent a number of years researching and analyzing the science of human motivation. At the center of his quest was a simple question: what works better—intrinsic motivators, which come from inside a person and require validation of no one, or extrinsic motivators, the carrots and sticks offered by other people?

Pink’s conclusion was rather loud and clear: there is a great wall between science and business, where managers and companies consistently ignored hundreds of experiments run in different contexts, economies, and organizations. Essentially, business has made its biggest bet on extrinsic motivators—bonuses, awards, corner offices, and parking spots—in an attempt to secure the highest levels of performance. Yet experiment after experiment in both affluent and emerging societies shows that if-then rewards, the carrots and sticks, work only for a rather narrow set of circumstances. Extrinsic motivators bring about a high level of performance where there is a clear goal and a simple set of rules for getting there. Rewards and bonuses act as a focusing mechanism, narrowing our attention, allowing us to quickly zoom to the finish line.

But for a task that has any level of complexity, uncertainty, and innovation built into it, extrinsic motivators do not work. The reason, Pink clarifies, is very important: here, solutions are not obvious and the steps are blurry. To discover the right path, you cannot focus on one item—rather, look around, explore the periphery, open up your possibilities. Awards and bonuses do the exact opposite.

Extrinsic and intrinsic motivators are often confused: it is assumed that people who feel motivated perform better—so we need to build up energy and a sense of motivation with some clearly defined reward. But that is not what the science shows. Pink illustrates:

Dan Ariely—one of the great economists of our time—he and three colleagues did a study of some MIT students. They gave these students a bunch of games that involved creativity and motor skills and concentration. And they offered them, for performance, three levels of rewards: small reward, medium reward, large reward. If you do really well, you get the large reward, on down. What happened? As long as the task involved only mechanical skill, bonuses worked as they would be expected to: the higher the pay, the better the performance. OK? But when the task called for even rudimentary cognitive skill, a larger reward led to poorer performance.⁸

To take into account the possible cultural bias and different levels of affluence, the researchers decided to repeat the experiments in Madurai, India, where the standards of living are much lower and rewards, relatively small by North American standards, would be considered much more substantial. The set-up was exactly the same: a number of games and three levels of rewards to drive higher performance. To much of my, Pink’s, and hopefully your surprise, this time people who were offered the highest level of reward performed worse of all. “In eight of the nine tasks we examined across three experiments, higher incentives led to worse performance.”⁹

When we use traditional extrinsic motivators—rewards, bonuses, titles—instead of intrinsic motivators, our teams might feel better. They might exude more energy. They might spill over with enthusiasm. But they do worse. When compared with less-known intrinsic motivators—a sense of purpose, a quest for learning, a feeling of freedom—extrinsic motivators lose more often than we think. And failure of extrinsic motivators is exactly what Patrice Briol and his HR department at Knauf Insulation wanted to take on. Their hypothesis? That the survival of the company depended on its ability to sustain and prosper despite the rapidly disappearing resources and the aftermath of the 2008 economic crisis. Such survival was a complex and challenging task. And this challenge might just be the intrinsic motivator that the entire company would benefit from. It was time to develop a new mind-set for a new challenge!

Instead of adding a new department to Knauf Insulation’s corporate structure, the HR team decided to add a range of new competencies to be mastered by all employees—and managed by all with a range of tools, such as the company’s 360-degree feedback program, which captures information all around about a person’s performance. Each of the competencies was expressed in specific behaviors, which were easy to understand, easy to develop, and easy to manage—all contributing to the development of a new way of thinking and working. It was time to move from department to mind-set.

Overfished Ocean Strategy: The Winning Mind-Set

The mind-set required for development and execution of a successful Overfished Ocean Strategy is built on a range of distinct capabilities—and the particular winning cocktail of competencies depends on your company, your industry, and your reality. Yes, the trusted aptitudes of the corporate world, often referred to as left-brain capabilities,¹⁰ are still in the game: we continue to need solid analysis, precise measurement, and disciplined execution. Yet as I have been pushing and pulling and nagging through the previous chapters, these staples of business success are simply not enough. A new set of competencies, more often associated with the right-brain world of artists, inventors, and “cultural creatives,”¹¹ is required for the unexpected, complex, and messy challenges of navigating the path from line to circle. While we have already discussed some of these competencies and skills, others are missing and deserve particular attention:

• Systems thinking—which focuses on how things interact within a whole—allows you and your team to manage and change at the scale of the entire value chain, rather than being stuck with dispersed, disconnected, and useless pieces of your puzzle. Like many other forms of thinking, systems thinking can be acquired and mastered. A close kin of systems thinking is transdisciplinarity—first developed as a research approach—which can be applied to business practices and processes. Companies have used cross-functional teams, job shadowing, rotations, and horizontal promotions as ways to strengthen transdisciplinary and holistic thinking within the company. Much more is needed.

• Stakeholder management particularly comes in handy as you begin your transformation from line to circle and from a vertical to a horizontal orientation—as it is likely that you will discover yourself in relationship with people and organizations you never thought existed. Suppliers of suppliers of suppliers, community leaders halfway across the world, customers you did not know you had, competitors you can benefit from, legislators who need your help… the list is long. The same applies to internal stakeholders of every kind—your counterparts throughout your company. The art of influence—of selling your ideas—is key.

• Design thinking has become the latest “it” tool for any respectable businessperson to conquer—and for a good reason. Unlike the decision mind-set—the most used managerial tool, which is all about making a hard choice between easy-to-identify alternatives—design thinking assumes an easy choice between difficult-to-create alternatives.¹² Tim Brown, CEO and president of IDEO, ranked among the 10 most innovative companies in the world, illustrates this new reality in the following way: “A management philosophy based only on selecting from existing strategies is likely to be overwhelmed by new developments at home and abroad. What we need are new choices—new products that balance the needs of individuals and of society as a whole; new ideas that tackle the global challenges of health, poverty, and education; new strategies that result in differences that matter and a sense of purpose that engages everyone affected by them. What we need is an approach to innovation that is powerful, effective, and broadly accessible. Design thinking… offers just such an approach.”¹³

I will stop here to avoid the risk of killing any desire for transformation you might still have after countless pages, and will offer a few references that might help you as you move from department to mind-set and start winning with it.

Building Your Tool Kit

In the previous chapters, we have covered most of the competencies needed to save the Overfished Ocean Strategy from a department prison and turn it into a powerful mind-set energizing the entire organization, so there is no point in listing all of the resources proposed for your tool kit up to this point. Here are a few additions you might find particularly handy:

• While there are many academic books on stakeholder management, very few of them are written for a typical (busy and slightly cynical, forgive my bluntness) manager. In essence, stakeholder management is about influence—the ability to sell your ideas and collaborate across all kinds of divides. The three best books on the topic, as I see it, are To Sell Is Human: The Surprising Truth About Moving Others, by my enduring favorite, Daniel H. Pink (New York: Riverhead Books, 2012); The Five Dysfunctions of a Team: A Leadership Fable, by Patrick Lencioni (San Francisco: Jossey-Bass, 2002), which gained a faithful following around the globe; and Influence: The Psychology of Persuasion, by Robert B. Cialdini (New York: HarperBusiness, 2006).

• Design thinking has recently exploded with countless books to choose from and many more resources to explore. The favorite—and most practical, in my view—is Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation, by Tim Brown of IDEO. IDEO started with traditional design (e.g., design of objects) but soon after found itself in a broader field of innovation—inventing business models, user experiences, and entire organizations. You can start exploring Tim Brown’s work at http://designthinking.ideo.com/.

• The topic of the uncertain future has been explored in many think tanks, and it might be helpful to track their research on the skills we will need to ride through the rough waters. Institute for the Future (IFTF) is just one such institution, and its Future Work Skills 2020 report describes such capabilities as “Novel and Adaptive Thinking—proficiency at thinking and coming up with solutions and responses beyond that which is rote or rule-based” and “Social Intelligence—ability to connect to others in a deep and direct way, to sense and stimulate reactions and desired interactions.” The entire report is available at http://www.iftf.org/our-work/global-landscape/work/future-work-skills-2020/.

We have traveled a long journey together—from an exploration of the marketplace to the discovery of the five principles that make up the emerging Overfished Ocean Strategy. The only question that remains here is where to start—or what, exactly, should your steps toward resource-intelligent innovation be? What should business do?

Over the past few years, I have watched companies of every size, geography, and industry answer this question in very different ways. Some got it right. Many got it wrong. So to answer the essential question of what business should do, we must first turn our attention to what, as I see it, most businesses should not do. It is my hope that by the end of the next chapter, we can all declare that green is dead. But the key question here is this: Is your marriage sustainable?