EPILOGUE
The Virtuous Circle
An organization’s productive power may well be its most important strategic asset. Consider just three of the challenges large companies face these days. Taken together, they constitute a kind of perfect storm for management teams seeking sustainable growth. And they can’t be addressed effectively without a highly productive organization.
One challenge, of course, is the business cycle. We don’t have a crystal ball, so we can’t predict what phase of the cycle the world will be in when you read these words. But executives will always be confronted with the possibility—or the reality—of downturns. Since 1919, according to National Bureau of Economic Research data, business cycles have averaged less than six years in duration, trough to trough. The shortest has lasted less than three years, the longest more than ten.1 Companies that fail to prepare can face catastrophic consequences. Just ask any real estate developer or lender in Las Vegas or Miami how it felt to be caught without a chair when the music stopped abruptly in 2008.
While no organization can completely insulate itself from the business cycle, companies with highly productive workforces can weather downturns better than their less productive competitors. When our partners at Bain & Company examined companies’ performance in times of turbulence, they discovered that those with the highest productivity going into a downturn usually exited the downturn in a stronger market position. Often these companies were able to take advantage of weaker rivals, expanding their market share in the down cycle and maintaining it in the following upturn.2
An organization’s productive power can also help it confront a second challenge: the possibility of a long-term decline in overall productivity. This “secular stagnation” hypothesis is hotly debated by academic and business economists, and in any event, its relevance will vary greatly from country to country and from one industry to another. But some of the statistics are hard to ignore. Economists define total factor productivity as the difference between the rate of GDP growth and the contributions made by growth in capital and labor; essentially, it’s a measure of the effects of innovation and technical progress. In his book The Rise and Fall of American Growth, Northwestern University professor Robert Gordon observes that high total factor productivity is the exception rather than the rule—and that the metric has been nearly 40 percent lower in the last five decades (except for 1996 to 2004) than it was in the eight decades before 1972. Does that mean low total factor productivity going forward? No one knows. Still, CEOs in many industries would be foolish to discount the possibility of sluggish innovation in future years.3
If innovation can’t be counted on to generate continued productivity growth, human capital management matters a great deal. The quality of each organization’s people will determine its baseline level of performance; the better the talent, the higher the baseline. How effectively companies team, lead, and deploy that talent will determine whether they can keep their productivity growing. No exogenous factor is going to do it for them.
The third challenge is one we have mentioned frequently in this book: the superabundance of financial capital. Capital superabundance stems in large measure from demographic trends that have produced a global economy of peak savers. Our colleagues at Bain’s Macro Trends Group estimate that the age group with the greatest net savings—forty-five- to fifty-nine-year-olds—will continue to expand until roughly 2040. So too much capital will be chasing too few good ideas for at least another couple of decades.4
Finding value-creating investments in this environment is, and will continue to be, much harder than in the past. The companies that prosper will be those that invest disproportionately in proprietary capabilities, assets, and insights. All these elements rely on great human capital, fully engaged and unconstrained by bureaucracy. As Dan Walker, former chief talent officer at Apple, notes, “Human capital is an organization’s primordial asset.”
All these challenges are beyond any company’s control. But CEOs and their management teams do have control over how they respond to them, and in particular, how they manage the truly scarce resources of time, talent, and energy to keep their companies ahead of the competition. The trouble is, making the most of these scarce resources has also become more difficult in today’s environment.
First, consider time management. As companies reach for growth, they frequently add new customer segments, products, services, and geographical areas. They may also attempt to buy growth through acquisitions. But the more dimensions you add to your business, the greater the complexity of your organization. Unless you are vigilant, bureaucracy-driven organizational drag will steal people’s precious time and undermine the growth you are trying to stimulate. Shifting organizational structures and practices designed to foster collaboration can create a similar problem. More and more work depends on networks of individuals and empowered teams working in close collaboration, and a host of electronic tools ostensibly make such collaboration easier and cheaper. But unless you are careful, the people in your organization will come down with a bad case of collaboration overload. They’ll be swamped by virtual meetings, emails, messages, and all the other methods of communication that modern technology permits.
Talent management, too, has become more challenging. Employees no longer expect to work for the same company all their lives, and the siren song of the rapidly growing company next door can be hard to resist. Indeed, many talented workers are more mobile than ever. Business networks such as LinkedIn and job databases such as Monster create greater visibility into career opportunities. Sites such as Glassdoor and Vault reveal much about what life is like inside other companies. The result is that employees are armed with more career and company information than ever before. Difference-making employees are apt to be less patient as well as more mobile, and often seek career expansion through job hopping. Lose your difference makers—or fail to deploy and team them for maximum impact—and you lose a critical competitive edge.
The management of energy is most affected by demographic and sociological trends. In the developed economies of the world, the shift from baby boomers and Gen Xers to millennials is well underway. (Millennials have already surpassed boomers as the largest living generation, according to the US Census Bureau.) Meanwhile, sluggish productivity growth and rising income inequality have dampened dreams of economic advancement for many. All this contributes to profound changes in the relationship between workers and the work they do: how they work, how much they work, and why they work in the first place—all are evolving. The workplace environment must thus meet a complex hierarchy of needs. Companies that can address those needs effectively will tap into the discretionary energy of their workforce, with a corresponding impact on relative productivity. Build a company and culture that drive performance and engagement and you will re-recruit your difference makers every day. Fail to do so and your most talented employees will head for the exits.
So managing these scarce resources is hard. But what makes the considerable effort worthwhile is the fact that each element reinforces the others, creating a virtuous circle that leaves competitors in the dust. That is what the outliers we have described in this book have tapped into.
The spinning flywheel
In this book, we have described three different elements of an organization: its time, talent, and energy. But the three elements interact, and the actions you take in one area will inevitably have an impact on the others. It helps to think of the organization as a spinning flywheel, and the actions that leaders take as speed boosts for the flywheel or, conversely, sand in the gears (see figure E-1).
The flywheel of organizational performance
Source: Bain & Company
Here’s how the flywheel works. The quality of a company’s workforce sets the baseline for its productive power. A workforce composed of great talent can produce more than one made up of average or mediocre employees. Teaming and deployment act as a force multiplier, increasing the organization’s productive power. Lean organizations, free from bureaucracy, allow employees to get more done, with less wasted time. If the work has a clear purpose, one that employees value, more of the workforce will be engaged. And if the company’s leaders see their job not just as managing tasks but as inspiring their teams, employees will devote still more discretionary energy to the company, its customers, and the community it serves. Under these conditions, the flywheel spins quickly, unencumbered by bureaucracy and fueled by the productive power of the organization.
A holistic approach, the kind we are advocating in this book, reduces the flywheel’s resistance, lowering organizational drag. It also powers up the flywheel, adding momentum as each element reinforces the others.
- Time. Reducing organizational drag and streamlining the organization have the direct impact of increasing a company’s productive power. Fewer impediments get in the way of accomplishing great things. Organizations that are free of bureaucracy often have higher levels of workforce engagement. Word spreads, and talented workers become anxious to enlist.
- Talent. An organization with more difference makers in the roles where they can have the biggest impact is more productive. As the company’s A-level players are teamed with others and deployed selectively, productive power increases geometrically. Equally important, talented workers don’t tolerate bureaucracy or waste. Organizational drag is lower. Great talent inspires others, encouraging coworkers to bring more discretionary energy to work every day.
- Energy. Energized employees get more done with less. Those who are inspired get even more done. These employees also create better customer experiences, particularly in service industries. Moreover, companies with high levels of employee engagement gain a reputation as great places to work. Acquiring and retaining great talent becomes easier.
Each of the elements of productive power—time, talent, and energy—interacts with the others, enabling a company to accomplish extraordinary things. Imagine some examples. If you have an engaged and inspired workforce, these employees become your strongest advocates, not just to customers but to future employees. They provide referrals not in hopes of receiving some bounty but because they know the company, believe in it, and want their friends to work there. Research by Dr. John Sullivan & Associates suggests that employee referrals lead to more and higher-quality applicants, a better applicant-to-hire ratio, lower costs, and longer employee retention.5 JetBlue, for instance, hires many of its customer service reps from among the community of stay-at-home mothers—many of them Mormon—in Salt Lake City. Many know each other. And Google has made a science of encouraging employee referrals. Rather than just asking for generic referrals, for example, it gets very specific. “We asked Googlers whom they would recommend for specific roles,” writes HR director Laszlo Bock in his recent book, Work Rules. “Who is the best finance person you ever worked with? Who is the best developer in the Ruby programming language?” He adds, “Breaking down a huge question (‘Do you know anyone we should hire?’) into lots of small, manageable ones (‘Do you know anyone who would be a good salesperson in New York?’) garners us more, higher-quality referrals.” Referrals increased by one-third when the company began using these techniques.6
Getting great talent in the door is easier in companies that have built a culture of engagement and ownership. Once they’re on board, they also find it easier to perform well in teams. At Bain & Company, we have been able to create a culture that attracts high-quality recruits, generates a great deal of engagement and inspiration, and leads to high performance among our teams. Our success is reflected in leading many third-party “best places to work” lists—for example, Glassdoor, Vault, and Consulting magazine. Advocacy has increased over time, and that has boosted the results of our recruitment efforts. We also find that the talented people our firm hires have little patience for organizational impediments. They pressure leaders to eliminate bureaucracy and streamline interactions. They push for effective ways of collaborating with their coworkers (and they don’t assess the value of a meeting based on the quality of the cookies or sandwiches served). As a result, there are fewer pointless meetings, unnecessary emails, or frivolous IMs. Anything that gets in the way of efficiently executing Bain’s customer mission is challenged and changed. And this challenge does not come from the top down; often it is the least tenured person who speaks up. The level of organizational drag plummets.
Just about all of the companies that we have highlighted in this book find a degree of synergy between the organizational elements, synergy that amps up the velocity of the flywheel. Engaged employees help companies simplify their operations. Cutting down on time wasters encourages a more productive culture. It’s an organizational virtuous circle rather than the vicious cycle in which so many companies find themselves trapped. And it enables companies to do things they never thought possible.
It has never been more important for CEOs and senior leaders to manage the time, talent, and energy of their workforce. Competitive success, even survival, may depend on it. Our hope is that some of the ideas we’ve shared in this book will be a helpful guide for overcoming organizational drag at your company and unleashing your team’s productive power. It will be the key to winning in the decades ahead.