Jul/093
The relationship is the asset
“Our people are our greatest asset.”
How often have you heard that phrase? How often have you used that phrase yourself? But how often have you stopped to think about what it means? – and what it implies in real business practice?
No doubt it’s intended as a compliment, a statement of collective pride and purpose. Yet this well-meant platitude can conceal a fundamental flaw in business reasoning – a flaw so serious that it can easily destroy an entire enterprise. The key is that it all depends on what we mean by ‘asset’ – which in turn depends on what we mean by ‘ownership’.
An asset is an item of value that is owned. But as described in the previous post on “What do shareholders own?“, there are two fundamentally different concepts of ownership: possession, and responsibility. In most common usage – especially in business – it’s the former meaning that applies: to ‘own’ something is to possess it; “possession is nine-tenths of the law”, and suchlike expressions.
Which is a problem. If ‘our’ implies possession, and we then say “Our people are our greatest asset”, it becomes all too easy to view people as assets that we possess. Objects – or subjects, perhaps – that we have an inherent, inalienable right to exploit in any way we need, just as with any other asset. That way madness lies…
The only time that people are ‘assets’ is when they are slaves. So to describe people as ‘assets’ is not a compliment: it’s more like an insult, an overt declaration of intent to enslave. Not exactly a wise move in present-day business – especially if we need the continued commitment, collaboration and cooperation of those people in the collective enterprise. People are not assets. Repeat it again: people are not assets – ever.
Yet there is a real asset there; and it’s one that does need our active promotion and protection, just as with any other business asset. To get there, though, we need to do some serious sidewise thinking.
First, drop the idea that ownership equates to possession: in this context at least, it doesn’t, and it can’t. The only kind of ownership that works here is responsibility-based: to ‘own’ something is to acknowledge and act on one’s personal responsibilities to, toward and for that ‘something’.
Next, we move back up one step. The person is not the asset: it is the relationship with that person that is the asset.
The relationship is the asset. Or rather, there are two distinct forms of relationship here that are ‘the asset’: the links between people and the collective – the enterprise, the corporation, business-unit, department, work-team – and the specific person-to-person links between individuals. (One illustration of this distinction is the phrase “people join companies and leave people”: they create a relationship that is an asset they share with the company, but leave because person-to-person relationships with others in the company – an overly-demanding manager, for example, or a bullying co-worker – have changed from positive-value assets to negative-value liabilities.)
These assets are fundamentally different from physical assets (conventional ‘property’) and virtual assets (‘intellectual property’). Not only can they never be ‘possessed’ as such, but they actually exist only as responsibilities, in the sense of ‘response-ability’. In both cases, they’re strongly dependent on feelings – probably far more so than anything concrete, in fact. The relationship with the collective is an odd kind of ‘one-way’ link from the person to the company or whatever, which depends on abstract feelings about reputation and ‘belonging’ and the like; there is nothing that we within the company can do directly to change that (though a great deal that we can do indirectly to change it – especially if we’re not aware of the relational impact of what we do and don’t do). The person-to-person link is more direct, often literally visceral, and importantly depends on the responsibility of both parties to maintain it: if either party drops their end of the relationship, the link is lost.
People only become ‘our’ people when those relationships exist: abstract links with the shared enterprise, and personal links with the other people in the enterprise with whom they interact. The connection with the enterprise – and hence the ability to engage in and contribute to the enterprise – depends almost entirely on the strength of those relationships. Physical presence may mean almost nothing: ‘presenteeism’ is endemic in most large organisations. Likewise virtual presence: as the dot-com debacle demonstrated all too well, ‘eye-balls’ do not automatically equate to actual sales. It’s only when people are emotionally present that things start to happen: and they can only be emotionally present if the relationships exist to enable them to do so.
The relationship is the asset.
So treat it as an asset. Exactly like any other business asset:
- how do you measure the value of the asset?
- how do you convert a liability (negative-value) to an asset (positive-value), and prevent an asset from becoming a liability?
- how do you monitor depreciation, wear, and other forms of erosion of value of the asset?
- how do you maintain the asset itself, in order to maintain the value of the asset?
You already do much of this in a sales-development process, from prospect to contact to pre-sales to sales-point to after-sales to maintenance and follow-up. A continuing sales-relationship is a high-value asset, as long as it remains of value to both parties. (That last point is where many so-called ‘customer-relationship management’ systems will fail: they only check the value from the company’s perspective, not the clients’, and hence pester ‘high-value’ clients to the extent that the latter will drop the relationship from their end – a fact that will not, however, be noticed by the system, because it has no means to do so.) Note though, that this only works if we take a responsibility-based approach to the asset: the moment we think that we ‘possess’ the customer is where it all starts to go horribly wrong…
The same is true for employee-relationships. People are not assets: the assets are the relationships through which employees feel themselves to belong as ‘our people’. To be ‘our’, to be a member of ‘us’, is a relationship with and as one of ‘us’. The relationship is the asset through which we connect with ‘our people’, through which employees are ‘our people’. So how do you measure that asset? How do you measure its value? – because if you don’t measure the value, from both directions, you have no means to identify when that asset is at risk of becoming a liability. How do you monitor changes in that value? How do you monitor potential and actual depreciation and wear? What actions do you take to maintain the asset, and the value of that asset? Much as for virtual-assets, how are these relational assets created, reviewed, updated, destroyed? – and why and for what purpose would you do each of these actions?
And there are other, more subtle issues around those two different types of relational assets: person-to-person, versus person-to-collective. The purpose of a brand, for example, is to provide an anchor for the latter type of asset: without the brand, or some other means to identify (and identify with) the collective, the only relationships that people can have with a company or other collective will be person-to-person. A key concern of personal-service firms, for example, is to link customer-relationships with the company rather than with the person providing the service – otherwise if and when that person moves on, the company’s nominal relationships with clients will move with the person, rather than remain with the company. In a similar way, if a manager or co-worker damages or destroys a person-to-person relationship with an employee – such as through bullying, for example – the employee probably move on; but whilst the person-to-person connection then ceases to exist, the company is left with an active liability in terms of damage to reputation and other aspects of that person’s relational link with the collective – which may well fester and infect others’ relationships with the company if nothing is done to repair the damage. The opposite is true, too: good reputation extends itself, virally, automatically helping to create high-value relational-assets without additional direct effort by the company and its representatives. Relationships are assets; relationships matter.
So make a habit, perhaps, to view relationships as assets, in exactly the same way as any other asset. Employees, customers, shareholders, everyone else: no person is an asset. Ever. But every relationship with those people is an asset. And if we fail to take care of that asset, it risks becoming a liability that can drag us down – just as with every other type of asset. The asset is the relationship – and, as an asset, it’s always our reponsibility to maintain it.
People are not assets: it is the relationship with each person that is the asset.
The asset is the relationship – not the person.
[Topic suggested by comments in an article on business-storytelling by Peter Bregman, on the Harvard Business website: "A good way to change corporate culture".]
Jul/092
10, 100, 1000, 10000
10, 100, 1000, 10000. A lot of things those numbers could apply to, of course, but in this case they’re ballpark figures for the number of hours it takes to develop specific levels of skill.
The thousand-hour level is quite well-known – the point at which we recognise the skill as skill. It should be obvious that it’s part of a continuum; what’s not so obvious, perhaps, is how that continuum works and what each level means in practice.
Skill-levels in part determine how we deal with an unknown world, so it’s useful to compare skill-levels against the Cynefin framework for sensemaking, as used in business and elsewhere:
Cynefin framework and skills-levels
In some ways, Cynefin’s four ‘domains’ also represent a classic two-axis matrix: a horizontal axis of unordered or ‘value’-based versus ordered or ‘truth’-based; and a vertical axis of available time for response, from real-time to assessment and response at one’s leisure. But it’s not quite as simple as that, because it’s also a hierarchy – cross-mapped to the layers of the ISO-9000 quality-system, for example – or a cyclic process such as the scientific-development sequence idea / hypothesis / theory / law. Each domain is also structurally different from the others in what is seen and observed, the way that decisions are made.
10 hours: Trainee: ‘learn by rote’, the typical outcome of a day’s-worth of training, or a weekend workshop – knowledge of at least the basic terminology of a skill, plus competence to at least do something useful in that context. Since there’s no real skill here – it’s just actions in response to given assumptions – this skill-level will always need to be supervised by someone or something that does have a higher skill-level, in order to ensure that what is done will actually work as intended in real-world practice. (That supervising ‘someone’ can be the same person, by the way – and often is, for real people in everyday business practice.)
- decision-making: rule-based – rapid real-time decisions on simple basis of true/false or either/or
- decision-process: sense / categorise / respond
- driver for development: unconscious incompetence – the need for competent action
- ISO-9000 layer: work-instruction
- emphasis on: physical action
- suited to: machines or IT; real people can work at this level, but usually become less reliable the more often the task is repeated
This skill-level solves a single defined problem by a single predefined method in response to a single set of narrowly-constrained assumptions. We use this level wherever conscious decision-making is either unnecessary or undesirable, or there’s no time to think about what to do: stick to the rules, ‘the law’, keep the focus only on the task at hand, just do it, and do it fast. This is the basis of all real-world action: everyone will have thousands of competencies of at least this level by the time they leave school, and many thousands more over a working lifetime, but will develop only selected competencies to higher levels of skill.
100 hours: Apprentice: the typical outcome of a two-week training-course combined with real-world practice, or working one’s way through the whole of an instruction-book – there’s awareness of some or most of the key factors in the context, and what the trade-offs are between them. It describes and operates within an analytic ‘theory’ or interlinked set of predefined algorithms and assumptions about how some aspect of the world works.
It’s crucially important to understand, though, that this type of skill depends on its assumptions: it is reliable only where those assumptions are valid, but it has no means within itself to test the validity those assumptions. Typical business software application encapsulate this level of skill, but in practice is suitable only for easily repeatable processes – not for true complexity.
Hence, as in the old fable of the Sorcerer’s Apprentice, this is perhaps the most dangerous of skill-levels: just enough knowledge to give oneself the delusion of competence and ‘control’, but not enough awareness of its real-world limitations – enough knowledge to get into serious trouble but not enough to get back out of it – hence it’s essential for there to be ‘practice-fields’ where the inevitable mistakes may be safely made. Further skills-development should also be supported by some form of cyclical review-process such as the Deming/Shewhart ‘plan / do / check / act’ sequence – often including structured feedback such as the After Action Review – or, for skills embedded within ‘intelligent’ machines or IT-systems, an iterative ‘Agile‘-style development process.
- decision-making: analytic – decision by ‘scientific’-type analysis using calculated algorithm or true/false comparison across many factors
- decision-process: sense / analyse / respond
- driver for development: conscious incompetence – realistic appraisal of current skill
- ISO-9000 layer: procedure
- emphasis on: calculation, analysis, thought
- suited to: IT systems and real people, also some types of machines with IT or algorithmic support
Over a working lifetime, most people will develop dozens or even hundreds of competencies at this level. Specialists will tend to collect competencies within a specific domain – system-developers, for example, will learn and use many different programming languages over time – whilst generalists will be more eclectic, often learning just sufficient about each skill to be able to converse meaningfully with the specialists yet build bridges between them.
1000 hours: Journeyman: the skills developed in a semester subject at university, a longer technical study, or just through routine practice over many months. By this stage there’s sufficient skill to work with the complexities of the real world – rather than only the abstract assumptions of IT-type logic – and to understand how to use guidelines and patterns, developing and testing hypotheses to interpret the inherent uncertainties and sheer messiness of most business practice. Unlike the ‘apprentice’ level, the ‘journeyman’ will be capable of doing unsupervised work – though there is still much to learn in terms of adaptability, ingenuity, precision and, especially, speed.
- decision-making: emergent – decisions based on experimentation, patterns and heuristics
- decision-process: probe / sense / respond
- driver for development: conscious competence – the need to challenge and extend one’s skill
- ISO-9000 layer: policy
- emphasis on: relationships, interconnections
- suited to: real people, also certain (expensive) types of ‘semi-autonomous’ IT-systems, and specific ‘self-adjusting’ components in certain types of machines (e.g. governor in steam-engine); IT usually only in a decision-support rather than decision-making role
Most people will develop a fair handful of these, as the secondary-level skills of working life: for example, the old office classics such as typing, shorthand and bookkeeping – or more updated versions such as spreadsheet design. As before, generalists will tend to collect more of these, across a broader, more eclectic scope; specialists will tend to keep their focus on a central skillset.
10000 hours: Master: the skills developed during the entire of a university course to pre-doctorate level, or of a full trade-apprenticeship – the latter traditionally ending with a skills-demonstration referred to formally as a ‘master-piece’. The knowledge and experience here is sufficient to know exactly how and when and why to bend or even break ‘the rules’, though this has now returned full-circle to working with the real world again in real-time. The classic description of this is the Chief Engineer in CS Forester’s novel The Ship: he stands on the deckplate, feet astride, hands behind his back, a still point in the centre of the action, silently watching everything going on, apparently doing nothing – yet takes action instantly when something crucial has been missed by others.
- decision-making: principle-based – real-time decisions from intuitive grasp of the whole context
- decision-process: act / sense / respond
- driver for development: unconscious competence – the need to apply skill in real-time
- ISO-9000 layer: vision
- emphasis on: principles and overall purpose
- suited to: real people only
Some people never reach this stage with any skill; and whilst many may have more than one – reflecting a change in career, perhaps – the number of such depth-skills for each person will always be few.
In principle at least, there is also the 100000 hours level, representing fifty years’ full-time commitment to a single skill. Almost by definition, this would be relatively rare, but certainly does occur, especially amongst artists, musicians and scientists. One business example would be Peter Drucker, who spent a working lifetime of more than 70 years observing and commenting on the social structure of business organisations.
10, 100, 1000, 10000 hours; a couple of days, a couple of weeks, half a year, five years; trainee, apprentice, journeyman, master. A useful rule-of-thumb to describe four different and distinct layers of skill.
[Article-topic suggested by Shawn Callahan of Australian narrative-knowledge consultancy Anecdote.]
Jul/094
What do shareholders own?
“The shareholders are the owners of the company.”
Really?
Let’s be blunt about this: if you’re in business and you still think that statement is true, you’ve already lost the plot.
Yes, I know it’s what the business schools assert, and even what the law asserts in some countries. But it’s always been a questionable claim, and in functional terms, in most industries, it hasn’t been true for centuries – if it was ever true at all. Which is a problem for business – to say the least…
To see why it’s a problem, we need to look more closely at what’s meant by ‘own’.
‘Own’ has two fundamentally different meanings:
- to be responsible for something
- to possess something – usually without responsibility for that ‘something’
Within a business, we’re clear what ‘ownership’ means: it’s about responsibility. A ‘process-owner’ is someone who is responsible for the execution of a process; likewise for ‘project-owner’, for ‘business-rule owner’, for someone who owns a business role or a business information-source, and so on and so on, almost ad infinitum. More to the point, the moment that someone thinks they possess that item is when it all goes wrong. Responsibilities are core; clean handovers of responsibilities are core; muddled ideas about ‘possession’ are very bad news indeed.
So why on earth do we think that it’s any different with shareholders?
What responsibilities do shareholders have? Well, none, really. They front up with a certain amount of money, and expect – demand – that the company change its ways to maximise the return to them. In many countries, corporate law will back that demand to the hilt, too. But in their role as shareholders, they don’t do any of the work of the company; they’re not responsible for any of the actions that the company takes; by law, they have little or no liability beyond the risk of perhaps losing their money. That’s it: no responsibilities. By law. A bit tricky, that.
No responsibilities. But they do possess the company, says the law. Shareholders provide capital. Capital buys assets. So the shareholders own – possess – the company’s assets. Which entitles them to all the profit from use of those assets. Yet what do we mean by ‘assets’? This is where it gets trickier still…
This does sort-of make sense for physical assets – physical things, machines, land, materials. All property-law is based around rights of possession – specifically, the right to exclude others from access to those resources, which is an interestingly back-to-front way of defining it. Those rights of property include rights to exploit the resource, without any reference to others, either in the present or elsewhen: any social responsibilities – environment, pollution, wastage, even disappropriation and dispossession by deceit – must all be managed via other law, separate from property-law itself. Shareholders’ ‘limited liability’ means that those responsibilities are always someone else’s problem: but the rights for those physical assets belong to the shareholders alone. And we can maintain ‘accounts’ for those rights in terms of valuation of those physical assets, allowing for depreciation, exploitation and the rest.
All fair enough – probably. Possibly. But the ‘shareholder-value’ – the price for which shares are sold, and the financial return from the use of assets – isn’t based only on physical assets. In fact, these days it’s very unusual for a company valuation to be based only on physical assets: for some companies the physical assets barely register in the accounts, and may even not exist at all.
So in those cases, what do shareholders own? For these, we’ll usually hear phrases such as ‘intellectual property’, ‘goodwill’ or ‘brand’. And this is where it gets really tricky…
What is ‘intellectual property’? The shortest answer is that it’s an attempt to apply the physical rules of possession – specifically, ‘alienability’, the right of physical exclusion – to a context where, by their nature, those rules cannot apply. Ideas and information are ‘non-alienable’: if I give it to you, I still have it – which certainly doesn’t apply to a physical object. For its legal justification, the physical-property system depends on trails of provenance, in which property-rights of some kind – usually the right to be paid – accrue at each stage at which value is added, and to each person (individual or collective) who added that value. But this principle can’t apply to ideas or information: David Bohm and other physicists have long since proved that since knowledge-generation is always collective, and that there is no identifiable initial-source for ideas, there is no means to establish a valid trail of provenance in which all appropriate parties may be appropriately paid. The only way it can be made to look like the physical-property system is if someone arbitrarily asserts exclusive possession, defining an arbitrary start-point for a trail of provenance, but disenfranchising every other party in the item’s history. In other words, what in the physical-property system would and must be called theft. In short, there is no ethical, legal, philosophical or scientific basis for any of it: the entire ‘intellectual property’ concept is a delusion – or, arguably, a fraud – dependent entirely upon belief and lawyers’ bluff. And in essence, any valuation based upon that bluff is likewise a delusion. Which means that a very large chunk of ‘shareholder value’ is also likewise a delusion. Ouch…
To make things worse, applying physical-property notions to ideas and information makes no practical sense. ‘Possession’ of an idea implies a right of exclusion, a right to prevent others from using that idea: yet the idea only has functional value when it’s used. A physical resource – a machine, for example – can often be exploited without any change to its ownership; but that simply does not apply to intellectual-property, because usage in effect is extensional transfer of ownership. Exclusion prevents use – defeating the entire object of the possession in the first place, because if the idea is not used, it may as well not exist. The result is incredibly wasteful: not merely having to reinvent the wheel, but reinvent even the concept of wheel, constantly having to create alternatives just to get around pointless, petty, pathetic intellectual-property ‘rights’. Perhaps useful for certain types of innovation, but that’s about it: in any other sense, it’s about as uneconomic and ineffective a system as it could possibly be. Ouch indeed…
But wait – there’s more. Yes, it does indeed get worse: because the moment we start to look at that blurry concept of ‘goodwill’, we’ll see that we’re really in trouble, because shareholders’ ‘rights’ of possession come into direct conflict with just about every other form of law.
The clue here is that otherwise well-meant phrase “Our people are our greatest asset”. There’s a subtle catch in that phrase, and a big one at that: the only time when people can be described as ‘assets’ is when they are slaves. Which is supposedly against the law: very much against the law, in almost every country. (Though quite a bit of contract-law gets dangerously close to it…) There is an asset here, but it’s not the person: the asset is the relationship with the person, without which we don’t have access to the person, or to any of the means via which those people add value to other assets. The exact same is true of customer-relations: customers add value, but customers in themselves are not assets – the asset is the relationship with each customer, via which that customer may add value in transactions or trade. And one of the quickest ways to destroy a relationship is to try to possess it: it only works when each party takes responsibility for their side of the relationship. So if we try to apply a physical-property model – possession – to those assets, we’re likely only to destroy them. Which means that the current concept of shareholder-value will automatically destroy the shareholder-value, unless we merely pretend to apply that concept but don’t actually do so in practice. Which means that, at present, the directors of every company must necessarily lie to their shareholders about their method of valuation, in order to preserve the ‘shareholder-value’, and thence the interests of those shareholders. Which is kind of interesting in terms of current corporate law…
And yes, it actually gets even worse than that – even more complicated and, for that matter, legally-indefensible – when we get to brands, or morale, or reputation or other ‘aspirational property’, because the company must preserve an abstract relationship that exists only as a belief, yet has direct impact on the company’s ability to do work and on its relationships with every other stakeholder in the enterprise. The only approach that will protect reputation is responsibility, in every possible sense: in these abstruse realms, delusions of ‘possession’ invariably lead to disaster.
So here we have, in law, the notion that the shareholders ‘possess’ almost everything, and have responsibility for almost nothing, when in reality the only way that works is the other way round. Kind of frightening to realise that we have an economy, an entire legal system, based on assumptions which simply cannot work in practice. And this isn’t a matter of the woolly wishful-thinking of politics and the like: we’re up against real, absolute constraints of physics and physical reality here. There’s no way round it: it does not and cannot work. End of story. Ouch…
But, whether we like it or not, and despite the fact that it simply does not work, in present-day business we’re still stuck with this farcical fiction of shareholder-ownership. So what can we do about it?
First, perhaps, is to put shareholders in their place. They’re nothing special: providers of a particular type of finance, who perhaps take a slightly higher level of risk than banks would (or should) be willing to offer. Their only ‘responsibility’ is to provide funding, and keep it there, to maintain the commercial credibility of the company – and given that stock-exchanges enable shares to change hands in milliseconds or less, that responsibility doesn’t stretch very far. To be blunt, their ‘rights’ in law are massively disproportionate to their risk or responsibility – but that’s a matter for politicians to debate and decide, not us. What we can do to put them more in their place is to be a darn sight more honest about the real level of assets of the enterprise, and about what they can and can’t ‘possess’. Physical assets they can ‘own’ in their own questionable way, but for everything else they can only – must – leave the responsibility-based ownership in the hands of the company itself.
And the way we do that is by being clear about where our responsibilities truly lie. If we really want to be responsible to shareholders, the last thing we should do is pander to their whims – especially those such as stock-analysts who have little or no grasp of responsibility in the first place. Business-guru Michael Porter is utterly blunt on this point: the obsession with placing shareholder-value as the highest priority is, he says, “the Bermuda Triangle of business strategy”.
Instead, we need to focus on what does work. And as business commentators such as Charles Handy documented decades ago, the priorities that do work are very well known. For example, the health-products group Johnson & Johnson summarise their own priorities as follows:
- service to customers comes first
- service to employees and management comes second
- service to the community comes third
- service to the shareholders comes last
There are many variations on this schema, of course, but the basic principle is sound: shareholders necessarily must be at or close to the bottom of the priority-stack – not the top. Self-centred shareholders will always demand to come first: but that isn’t what works. They’re no doubt quick to demand their ‘rights’; but if they really want shareholder-value, and real returns, they need to get real about responsibilities, and where those responsibilities really reside.
Shareholders’ rights are based on possession, and possession alone. But there’s very little in a present-day company that can be possessed: everything else exists only as responsibilities. In practice, shareholders own the company only to the extent that they accept and act on its responsibilities. The less responsibility they have, the less they can actually own.
As simple as that, really.
Jul/090
Why ‘side-wise’?
Conventional business wisdom is easy to find: in the library, on the internet, the blogs and the business journals, from the academics or the big consultancies, or from colleagues in the club or pub. But mostly it’s the same old wisdom: it works as long as everything stays the same as it always did.
Which it doesn’t; so it doesn’t. Which is a problem.
Sometimes what’s needed most is unconventional wisdom: to quote a certain well-known scientist, a problem cannot be solved by the same thinking that caused that problem in the first place. To get out of a loop, a rut, we need to be able to jump sideways. Or, more particularly, think side-wise.
So every culture has had its side-wise thinkers: the maverick, the court-jester, the formal legal role of ‘devil’s advocate’ – the valued insider-outsiders who counter the otherwise inevitable ‘stuckness’ and groupthink. Literally eccentric, aside from the centre, yet able to apply side-wise leverage to help the world turn the right way up. And it’s the same with our world: present-day business needs side-wise thinking to guide innovation and adaptation, to keep abreast and ahead of continual change.
Some of that ‘wisdom from the side’ may seem random at first, but it has its own definite discipline – the discipline of the generalist, weaving connecting threads across every other discipline and silo. So as well as identifying and annotating some of the new ideas and innovations coming side-wise down the track, one key aim of this site is to explore that deeper discipline of side-wise thinking – how to do it, why to do it, what to do (and not do), when and where to use it (and not use it), how to monitor and measure its impact and value.
So return here often for new ideas, new information – we trust you’ll find it of real value to your and your business.