How HR “best practices” Kill Innovation

How HR “best practices” Kill Innovation

Did you ever notice that Human Resource (HR) practices are designed to lock-in the past rather than grow?  A quick tour of what HR does and you quickly see they like to lock-in processes and procedures, insuring consistency but offering no hope of doing something new.  And when it comes to hiring, HR is all about finding people that are like existing employees – same school, same degrees, same industry, same background.  And HR tries its very hardest to insure conformity amongst employees to historical standard – especially regarding culture.

Several years ago I was leading an innovation workshop for leaders in a company that made nail guns, screw guns, nails and screws.  Once a market leader, sales were struggling and profits were nearly nonexistent due to the emergence of competitors from Asia.  Some of their biggest distributors were threatening to drop this company’s line altogether unless there were more concessions – which would insure losses.

They liked to call themselves a “fastener company,” which has long been the trend with companies that like to make it sound as if they do more than they actually do.

I asked the simple question “where is the growth in fasteners?”  The leaders jumped right in with sales numbers on all their major lines.  They were sure that growth was in auto-loading screwguns, and they were hard at work extending this product line.  To a person, these folks were sure they new where growth existed.

But I had prepared prior to the meeting.  There actually was much higher growth in adhesives.  Chemical attachment was more than twice the growth rate of anything in the old nail and screw business.  Even loop-and-hook fasteners [popularly referred to by the tradename Velcro(c)] was seeing much greater growth than the old-line mechanical products.

They looked at me blank-faced.  “What does that have to do with us?” the head of sales finally asked.  The CEO and everyone else nodded in agreement.

I pointed out to them they said they were in the fastener business.  Not the nail and screw business.  The nail and screw business had become a bloody fight, and it was not going to get any better.  Why not move into faster growing, less competitive products?

Competitors were making lots of battery powered and air powered tools beyond nail guns and screw guns, and their much deeper product lines gave them much higher favorability with retail merchandisers and professional tool distributors.  Plus, competitor R&D into batteries was already showing they could produce more powerful and longer-lasting tools than my client.  In a few major retailers competitors already had earned the position of “category leader” recommending the shelf space and layout for ALL competitors, giving them a distinct advantage.

This company had become myopic, and did not even realize it.  The people were so much alike that they could finish each others sentences.  They liked working together, and had built a tightly knit culture.  The HR head was very proud of his ability to keep the company so harmonious.

Only, it was about to go bankrupt.  Lacking diversity in background, they were unable to see beyond their locked-in business model.  And there sure wasn’t anyone who would “rock the boat” by admitting competitors were outflanking them, or bringing up “wild ideas”  for new markets or products.

According to the New York Times 80% of hiring is done based on “cultural fit.”  Which means we hire people we want to hang out with. Which almost always means people that are a lot like ourselves.  Regardless of what we really need in our company.  Thus companies end up looking, thinking and acting very homogenously.

It is common amongst management authors and keynote speakers to talk about creating “high-performance teams.” The vaunted Jim Collins in “Good to Great” uses the metaphor of a company as a bus.  Every company should have a “core” and every employee should be single-mindedly driving that “core.” He says that it is the role of good leaders to get everyone on the bus to “core.”  Anyone who isn’t 100% aligned – well, throw them off the bus (literally, fire them.)

We see this phenomenon in nepotism.  Where a founder, CEO or Chairperson who succeeds uses their leadership position to promote relatives into high positions.

Wal-Mart’s Board of Directors, for example, recently elected the former Chairman’s son-in-law to the position of Chairman.  He appears accomplished, but today Wal-Mart’s problem is Amazon and other on-line retail. Wal-Mart desperately needs outside thinking so it can move beyond its traditional brick-and-mortar business model, not someone who’s indoctrinated in the past.

The Reputation Institute just completed its survey of the most reputable retailers in the USA.  Top of the list was Amazon, for the third straight year.  Wal-Mart wasn’t even in the top 10, despite being the largest U.S. retailer by a considerable margin.  Wal-Mart needs someone at the top much more like Jeff Bezos than someone who comes from the family.

malcolm-forbes-publisher-diversity-the-art-of-thinking-independentlyDespite what HR often says, it is incredibly important to have high levels of diversity.  It’s the only way to avoid becoming myopic, and finding yourself with “best practices” that don’t matter as competitors overwhelm your market.

Ever wonder why so many CEOs turn to layoffs when competitors cause sales and/or profits to stall?  They are trying to preserve the business model, and everyone reporting to them is doing the same thing.  Instead of looking for creative ways to grow the business – often requiring a very different business model – everyone is stuck in roles, processes and culture tied to the old model.  As everyone talks to each other there is no “outsider” able to point out obvious problems and the need for change.

In 2011, while he was still CEO, I wrote a column titled “Why Steve Jobs Couldn’t Find a Job Today.” The premise was pretty simple. Steve Jobs was not obsessed with “cultural fit,” nor was he a person who shied away from conflict.  He obsessed about results.  But no HR person would consider a young Steve Jobs as a manager in their company.  He would be considered too much trouble.

Yet, Steve Jobs was able to take a nearly dead Macintosh company and turn it into a leader in mobile products.  Clearly, a person very talented in market sensing and identifying new solutions that fit trends.  And a person willing to move toward the trend, rather than obsess about defending and extending the past.

Quotation-W-Somerset-Maugham-trouble-men-charm-ideas-Meetville-Quotes-97641Does your organization’s HR insure you would seek out, recruit and hire Steve Jobs, or Jeff Bezos?  Or are you looking for good “cultural fit” and someone who knows “how to operate within that role.”  Do you look for those who spot and respond to trends, or those with a history related to how your industry or business has always operated?  Do you seek people who ask uncomfortable questions, and propose uncomfortable solutions – or seek people who won’t make waves?

Too many organizations suffer failure simply because they lack diversity.  They lack diversity in geographic sales, markets, products and services – and when competition shifts sales stall and they fall into a slow death spiral.

And this all starts with insufficient diversity amongst the people.  Too much “cultural fit” and not enough focus on what’s really needed to keep the organization aligned with customers in a fast-changing world. If you don’t have the right people around you, in the discussion, then you’re highly unlikely to develop the right solution for any problem.  In fact, you’re highly unlikely to even ask the right question.

Status Quo Police – Innovation Killers


Nobody admits to being the innovation killer in a company.  But we know they exist.  Some these folks “dinosaurs that won’t change.”  Others blame “the nay-saying ‘Dr. No’ middle managers.”  But when you meet these people, they won’t admit to being innovation killers.  They believe, deep in their hearts as well as in their everyday actions, that they are doing the right thing for the business.  And that’s because they’ve been chosen, and reinforced, to be the Status Quo Police.

When a company starts it has no norms.  But as it succeeds, in order to grow quickly it develops a series of “key success factors” that help it continue growing.  In order to grow faster, managers – often in functional roles – are assigned the task of making sure the key success factors are unwaveringly supported.  Consistency becomes more important than creativity.  And these managers are reinforced, supported, even bonused for their ability to make sure they maintain the status quo.  Even if the market has shifted, they don’t shift.  They reinforce doing things according to the rules.  Just consider:

Quality – Who can argue with the need to have quality?  Total Quality Management (TQM,) Continuous Improvement (CI,) and Six Sigma programs all have been glorified by companies hoping to improve product or service quality.  If you’re trying to fix a broken product, or process, these work pretty well at helping everyone do their job better.

But these programs live with the mantra “if you can’t measure it, you can’t improve it.  Measure everything that’s important.”  If you’re innovating, what do you measure?  If you’re in a new technology, or manufacturing process, how do you know what you really need to do right?  If you’re in a new market, how do you know the key metric for sales success?  Is it number of customers called, time with customers, number of customer surveys, recommendation scores, lost sales reports?  When you’re trying to do something new, a lot of what you do is respond quickly to instant feedback – whether it’s good feedback or bad.

The key to success isn’t to have critical metrics and measure performance on a graph, but rather to learn from everything you do – and usually to change.  Quality people hate this, and can only stand in the way of trying anything new because you don’t know what to measure, or what constitutes a “good” measure.  Don’t ever forget that Motorola pretty much invented Six Sigma, and what happened to them in the mobile phone business they pioneered?

Finance.  All businesses exist to make money, so who can argue with “show me the numbers.  Give me a business plan that shows me how you’re going to make money.”  When your’e making an incremental investment to an existing asset or process, this is pretty good advice. 

But when you’re innovating, what you don’t know far exceeds what you know.  You don’t know how to meet unment needs.  You don’t know the market size, the price that people will pay, the first year’s volume (much less year 5,) the direct cost at various volumes, the indirect cost, the cost of marketing to obtain customer attention, the number of sales calls it will take to land a sale, how many solution revisions will be necessary to finally put out the “right” solution, or how sales will ramp up quarterly from nothing.  So to create a business plan, you have to guess. 

And, oh boy, then it gets ugly.  “Where did this number come from?  That one?  How did you determine that?”  It’s not long until the poor business plan writer is ridden out of the meeting on a rail.  He has no money to investigate the market, so he can’t obtain any “real” numbers, so the business plan process leads to ongoing investment in the old business, while innovation simply stalls.

Under Akia Morita Sony was a great innovator. But then an MBA skilled in finance took over the top spot.  What once was the #1 electronics innovator in the globe has become, well, let’s say they aren’t Apple.

Legal – No company wants to be sued, or take on unnecessary risk.  And when you’re selling something, lawyers are pretty good at evaluating the risk in that business, and lowering the risk.  While making sure that all the compliance issues are met in order to keep regulators – and other lawyers – out of the business.

But when you’re starting something new, everything looks risky.  Customers can sue you for any reason.  Suppliers can sue you for not taking product, or using it incorrectly.  The technology could fail, or have negative use repercussions.  Reguators can question your safety standards, or claims to customers. 

From a legal point of view, you’re best to never do anything new.  The less new things you do, the less likely you are to make a mistake.  So legal’s great at putting up roadblocks to make sure they protect the company from lawsuits, by making sure nothing really new happens.  The old General Motors had plenty of lawyers making sure their cars were never too risky – or interesting.

R&D or Product Development – Who doesn’t think it’s good to be a leader in a specific technology?  Technology advances have proven invaluable for companies in industries from computers to pharmaceuticals to tractors and even services like on-line banking.  Thus R&D and Product Development wants to make sure investments advance the state of the technology upon which the company was built.

But all technologies become obsolete.  Or, at least unprofitable.  Innovators are frequently on the front end of adopting new technologies.  But if they have to obtain buy-in from product development to obtain staffing or money they’ll be at the end of a never-ending line of projects to sustain the existing development trend.  You don’t have to look much further than Microsoft to find a company that is great at pouring money into the PC platform (some $9B, 16% of revenue in 2009,) while the market moves faster each year to mobile devices and entertainment (Apple spent 1/8th the Microsoft budget in 2009.)

Sales, Marketing & Distribution – When you want to protect sales to existing customers, or maybe increase them by 5%, then doing more of what you’ve always done is smart.  So money is spent to put more salespeople on key accounts, add more money to the advertising budget for the most successful (or most profitable) existing products.  There are more rules about using the brand than lighters at a smoker’s convention.  And it’s heresy to recommend endangering the distribution channel that has so successfully helped increase sales.

But innovators regularly need to behave differently.  They need to sell to different people – Xerox sold to secretaries while printing press manufacturers sold to printers.  The “brand” may well represent a bygone era, and be of no value to someone launching a new product; are you eager to buy a Zenith electronic device?  Sprucing up the brand, or even launching something new, may well be a requirement for a new solution to be taken seriously.

And often, to be successful, a new solution needs to cut through the old, high-cost distribution system directly to customers if it is to succeed.  Pre-Gerstner IBM kept adding key account sales people in hopes of keeping IT departments from switching out of mainframes to PCs.  Sears avoided the shift to on-line sales successfully – and revenue keeps dropping in the stores.

Information Technology – To make more money you automate more functions.  Computers are wonderful for reducing manpower in many tasks.  So IT implements and supports “standard solutions” that are cost effective for the historical business.  Likewise, they set up all kinds of user rules – like don’t go to Facebook or web sites from work – to keep people focused on productivity.  And to make sure historical data is secure and regulations are met.

But innovators don’t have a solution mapped out, and all that automated functionality is an enormously expensive headache.  When being creative, more time is spent looking for something new than trying to work faster, or harder, so access to more external information is required.  Since the solution isn’t developed, there’s precious little to worry about keeping secure.  Innovators need to use new tools, and have flexibility to discover advantageous ways to use them, that are far beyond the bounds of IT’s comfort zone.

Newspapers are loaded with automated systems to collect and edit news, to enter display ads, and to “Make up” the printed page fast and cheap.  They have automated systems for classified advertising sales and billing, and for display ad billing.  And systems to manage subscribers.  That technology isn’t very helpful now, however, as newspapers go bankrupt.  Now the most critical IT skills are pumping news to the internet in real-time, and managing on-line ads distributed to web users that don’t have subscriptions. 

Human Resources – Growth pushes companies toward tighter job descriptions with clear standards for “the kinds of people that succeed around here.”  When you want to hire people to be productive at an existing job, HR has the procedures to define the role, find the people and hire them at the most efficient cost.  And they can develop a systematic compensation plan that treats everyone “fairly” based upon perceived value to the historical business.

But innovators don’t know what kinds of people will be most successful. Often they need folks who think laterally, across lots fo tasks, rather than deeply about something narrow.  Often they need people who are from different backgrounds, that are closer to the emerging market than the historical business.  And pay has to be related to what these folks can get in the market, not what seems fair through the lens of the historical business.  HR is rarely keen to staff up a new business opportunity with a lot of misfits who don’t appreciate their compensation plan – or the rules so carefully created to circumscribe behavior around the old business.

B.Dalton was America’s largest retail book seller when Amazon.com was founded by Jeff Bezos.  Jeff knew nothing about books, but he knew the internet.  B.Dalton knew about books, and claimed it knew what book buyers wanted.  Two years later B.Dalton went bankrupt, and all those book experts became unemployed. Amazon.com now sells a lot more than books, as it ongoingly and rapidly expands its employee skill sets to enter new markets – like publishing and eReaders.

Innovation requires that leaders ATTACK the Status Quo Police.  Everything done to efficiently run the old business is irrelevant when it comes to innovation.  Functional folks need to be told they can’t force the innovatoirs to conform to old rules, because that’s exactly why the company needs innovation!  Only by attacking the old rules, and being willing to allow both diversity and disruption can the business innovate.

Instead of saying “this isn’t how we do things around here” it is critical leaders make sure functional folks are saying “how can I help you innovate?”  What was done in the name of “good business” looks backward – not forward.  Status Quo cops have to be removed from the scene – kept from stopping innovation dead in its tracks.  And if the internal folks can’t be supportive, that means keeping them out of the innovator’s way entirely.

Any company can innovate.  Doing so requires recognizing that the Status Quo Police are doing what they were hired to do.  Until you take away their clout, attack their role and stop them from forcing conformance to old dictums, the business can’t hope to innovate.

 

Hiring What You Need – Not What You’re Used To

There's no doubt that many more people are looking for jobs than there are those hiring.  As a result, organizations offering jobs can find themselves flooded with applicants.  Several are complaining about how hard it is to find "the right person."  Reality is most companies have been struggling to find "the right person" for a long time.  It just wasn't as obvious.

According to The Wall Street Journal "To Find Best Hires, Firms Become Creative."  Yet, these creative ideas are largely about finding new ways to restrict the number of people getting into the hiring funnel.  Increasingly, asking potential employees to carry more cost of the hiring process.  And often putting employees through a longer (sometimes days) battery of interviews.  Yet, it is unclear that these new hurdles are helping organizations hire "the right person" any more often.

In today's changing marketplace, "the right" people are often those who can help the organization adapt.  They think laterally about what is happening in the market, and how to develop creative solutions.  They rely less on their historical experience, and more on their scenarios about the future.  They pay a lot of attention to competitors, and push for decisions that leapfrog competitive actions.  And they aren't afraid to Disrupt historical ways of behaving and recommend white space projects where new things can be tried.  They don't try to Defend & Extend the company's Success Formula.  Instead they seek improved results.

But that is not how hiring processes are designed.  They focus on developing tight requirements.  With so many applicants now, the focus is on making very, very tight requirements so resumes can be sifted efficiently for specific experiences.  But this approach means hiring requirements are based on what history has dictated was needed.  They reflect what the company used to do, how it used to hire, what previous employees did that supported the old Success Formula.  Job requirements rarely look forward, instead they try to find homogeneous individuals who are like people that succeeded in the past.  Usually by reinforcing the old Success Formula.  They are out to find candidates who want to Defend & Extend the Success Formula, not evolve it to better results.

Most hiring organizations even have an "ideal prototype candidate."  This goes down to specifying the type of degree, and the university attended.  It may well include specifying a geography where the candidate was raised.  Common certifications.  A preferred set of previous jobs that are like what others have been through.  These approaches are all about yielding candidates that look alike – not different.  In most companies, an employee from Google. Amazon or Apple – very successful companies – could not get through the first round.

Then the prolonged interviews.  These simply force candidates to be like the people doing the interviews.  Rafts of studies have been done on interviewing, and they always return the result that interviewers like people who are like themselves.  The interviewer has a sense of what they think made them successful – education, experience and problem solving approach.  And they simply look to see if the candidate is like them.  If the interviewing goes on for days, they even look to see if the candidate orders food like them, drinks like them, has the same approach to mornings or working late.  The long interview approach merely ensures that candidates are more likely to be just like existing employees.

These approaches are about finding candidates that have a good "initial fit."  But if the organization is in need of adapting to changing market conditions, is that the employee you really need?  All the people at the old AT&T were much alike – but that company still didn't survive deregulation.  The people at most airlines are much alike, yet outside of Southwest the airlines don't make any money.  GM had an "ideal employee profile" yet the people leading the company could not deal with market shifts that sent the organization into bankruptcy.

Today your organization might well need new employees who are not like previous employees.  They may well need different  education.  Different experiences.  Work in different industries.  And different approaches to problem solving.  With so many available candidates, is your approach to hiring helping you find people who can help your company grow, or is it trying to find the kind of people who reinforced the old Success Formula?  Are you hiring for the future, or searching for people like you hired in the past?