Six Simple Rules

by Yves Morieux

SIMPLE RULES TOOLKIT

  Beware of Too Much Clarity

  Resist the pressure to clarify roles, decision rights, and processes. Try to keep appropriate fuzziness and overlaps between roles.

  Beyond a certain threshold, clarity only encourages mechanistic compliance and “checking the box” behaviors, as opposed to the engagement and initiative to make things work.

  The ambiguity is killing us. Nobody knows where his job ends and another person’s begins.” When somebody asks for clarity in this way, it is frequently an attempt to avoid having to cooperate. If you respond to such a request by offering complete clarity on where the responsibility starts and ends, another question is sure to follow: “OK, well if that’s how it is, and I’m going to be held accountable, I’m going to need a few things: equipment, team, budget, and decision rights that clearly match the scope of my responsibility.” If you agree, and even if you are careful not to give too many resources, you will discover that you have achieved a “miracle.” All the dependencies will disappear and the need for cooperation that goes with them; now the person who asked for clarity has complete self-sufficiency. The individual who is clearly accountable—thanks to that clarified list of responsibilities—can do without others and escape the servitude of cooperation. Each person can tend his or her own garden, not being dependent on others. But at what cost for the company as a whole? Self-sufficiency may be comfortable, but this kind of comfort is a poor predictor of organizational success. (See the sidebar “The Difference between Autonomy and Self-Sufficiency.”)

  KEEP IN MIND

  The Difference between Autonomy and Self-Sufficiency

  Autonomy is about fully mobilizing our intelligence and energy to influence outcomes, including those outcomes that we do not entirely control.

  Self-sufficiency is about limiting our efforts only to those outcomes that we control completely without having to depend on others.

  Autonomy is essential for coping with complexity; self-sufficiency is an obstacle because it hinders the cooperation needed to make autonomy effective.

  Industronal: The Challenge of Cutting Costs While Maintaining Quality

  In order to address its quality problem, Industronal’s management decided to increase the company’s investment in research and development. Doing so, however, meant cutting costs in other departments in order to free up the necessary funds for investment. The purchasing departments’ contribution to this effort, as senior management defined it, was to cut total purchasing costs by 20 percent, with no erosion in the quality of supplies or in on-time delivery.

  The purchasing organization consisted of two quite different roles: the “category strategists” and the “buying units.” The role of the category strategist was to develop a strategy for how to buy goods in a particular category, such as raw materials, manufacturing equipment, IT systems, or office furniture. The strategy had to be clear, with detailed specifications pertaining to vendor selection, negotiation, and legal agreements. Once the strategy was set, the category strategists would then create guidelines and develop tools that were used by the buying units. These units were organized by region and handled the orders they received from their internal customers for resources in all categories. The managers of the buying units were expected to follow the category guidelines and deploy the tools to determine how the orders should be processed.

  Two Views of the Purchasing Role

  The category strategists did their best to come up with innovative ways to cut costs. But they argued that the buying units failed to implement the strategies properly. The buying units, in turn, complained that the strategies weren’t practical, that the tools and guidelines were difficult to use, and that applying them took too long. “The category strategists are just a bunch of technocrats,” the buying units said. “All they care about is their strategies, their guidelines, and their tools. They don’t seem to care what we really need to do our work.”

  As for the purchasing department’s internal customers at Industronal, we observed that they often bypassed the buyers altogether and dealt directly with suppliers of their choice. They generally purchased smaller quantities than the purchasing department did and did not haggle much over prices and terms, but they got what they wanted when they wanted it. To them, the purchasing department had become a constraint, and suppliers were the resource. This direct dealing undercut the relationships the buying units had with the suppliers and made it impossible for them to achieve the targeted cost reduction.

  Setting Rich Objectives: Framing Roles for Overall Results

  Soon after we got involved with Industronal, we realized that a key part of the solution to the problem was to develop rich objectives for both the category strategists and the buying units. When roles are defined with rich objectives, people at the front line of the organization can make the everyday trade-offs that arise when dealing with multiple performance requirements. With rich objectives, there is less need to put procedures in place to arbitrate conflicts between requirements (or the groups responsible for them) and decisions are less likely to escalate through the organization. (See the sidebar “Rich Objectives.”)

  Collective Output Objectives

  Collective output objectives are those that depend on the involvement of multiple individuals and units. These objectives define the ultimate value the groups involved want to deliver, as defined by external or internal customers, or by other stakeholders. This output is measurable. For the sprinters in the relay race, for example, the collective output objective is to win the race. Winning requires dealing with the complexity of two contradictory requirements: speed and reliability (in passing the baton).

  KEEP IN MIND

  Rich Objectives

  Rich objectives stimulate the mutual interest to cooperate by making each person’s success depend on the success of others. They have three components:

  Collective output objectives define the ultimate value the organization wants to deliver; their achievement depends on the interactions of multiple individuals and work units.

  Individual input objectives define the inputs that individuals contribute to the collective output; their achievement does not depend on interactions with other individuals or work groups.

  Overlap objectives define what a person does, in his or her role and area, and that increases the effectiveness of others in their own roles and areas.

  At a high level, output objectives can be formulated in terms of earnings, return on investment, share price (such as at InterLodge), time to market (such as at MobiliTele), or market share (such as at GrandeMart). At a more granular level, output objectives can involve: working capital, gross margin, cost of goods sold, profitability by product, or new-product sales. At Industronal, the collective output objectives defined for the category strategists and the buying units were to reduce the total cost of purchases by 20 percent and to satisfy the needs of internal customers.

  Individual Input Objectives

  This second component of rich objectives is a contribution or input to the collective output that an individual or discrete unit can make without the significant involvement of other individuals or units. Some aspects of an input objective are measurable, such as the efficiency with which an individual can learn a skill and his or her efficiency in applying that skill.

  It takes initiative for individuals to add value to a collective effort. They have to interpret the formal procedures, figure out how to act in the spirit of guidelines, and go beyond the letter of the law. They have to take the specifics of each situation into account, rather than just mechanistically checking off the boxes on the list of procedural steps or action items. There is always a distance—a gap—between real situations and what is defined by procedures. The gap can only be bridged by people using their judgment to best apply procedures. Bridging that gap is how people add value. The greater the complexity of multiple and contradictory performance requirements, the greater the distance between situations and what the rules can instruct.


  The individual’s efforts are essential to bridge the gap between the design of roles and responsibilities as defined on paper and the real situations in which the tasks must be performed. In the relay race, some input objectives are unique to a specific sprinter—for example, the one who starts the race needs to know how to get out of the blocks quickly. Other input objectives are common to all the sprinters, for instance, each one has to train so that she runs her leg of the race as fast as she possibly can.

  At Industronal, the input objective defined for the category strategists was to develop innovative buying strategies. For the managers of the buying units, the input objective was to develop the skills of the members of their buying team. Both kinds of contribution could be objectively assessed to some extent: there are standard optimization levers for procurement strategies that can be used to evaluate their innovativeness, and it is also possible to assess the mastery of new skills. (See the sidebar “Defining Input Objectives.”)

  Overlap Objectives

  Overlap objectives are contributions that only make a positive difference in the performance of others. It is a way to perform tasks that increases the contribution of others to the output. The overlap objective for one sprinter is to transfer the baton in the most effective way for the next sprinter. For this sprinter, the overlap objective is to take the baton in the way that is most effective for the previous runner.

  At Industronal, the overlap objective defined for category strategists was to ensure that the guidelines and tools they developed for the buying units were practical and easy to apply. If they considered the gray area intelligently, they could increase the contribution of the buyers to the overall result. For the buyers, the overlap objective was to take into account the category strategies when processing and executing orders. In doing so, they could provide category strategists with more opportunities to go further in developing innovative strategies, instead of having to constantly modify the same ones because they were not applied.

  SIMPLE RULES TOOLKIT

  Defining Input Objectives

  In defining input objectives, make sure the scope of roles is valuable for the individual as well as for the organization. Doing so creates a strong social contract between the company and its people. To accomplish this, ask these two questions:

  Will this role and its objectives create a significant learning effect? Will the effective execution of the role bring about productivity improvements whose benefits can be shared between the company and its employees? Does the role involve individual capabilities that the individuals can enhance as they gain experience in the role?

  Is the learning effect sustainable over time? Will the role become obsolete quickly or will it remain relevant as technology progresses and market trends shift? Input objectives are sustainable when they lead to continuous improvement and education. By making learning a valuable investment for individuals—beyond its value to their current work with the company—you provide a reason for people to engage more fully in their role today.

  When you set up overlap objectives, remember that success in overlap objectives is essential for performance (it is indeed the ultimate success factor at the world-class level, for instance, with very strong individual sprinters). But this success—or failure—inherently takes place off the radar screen of objective measurable criteria. The transfer of the baton is a blind spot for metrics: it happens in a gray area where individual contributions cannot be measured. If the baton falls or slows down during the transfer, was it the sprinter who passed the baton or the one who took it who caused the failure? No metric will give you the answer. At Industronal, was the failure to achieve the desired cost reduction of a particular transaction because of the inadequacy of the strategy or of the execution? Similarly, consider the extent to which the category strategists pay attention to the practical applicability of the guidelines and tools they develop for the buying units. There are no objective measurable criteria in these gray areas. Only when the buyers try to put a guideline or tool to use can they feel if it is practical or not. When they use a tool well, is it because it is very practical, thanks to the category strategists’ efforts or because of the diligence of the buyers? Measurement cannot disentangle contributions to overlap objectives.1 What gets measured gets done, yes. But if we only use measurement to reward performance, what gets done is at the expense of what cannot be measured: cooperation. We get a series of accurate metrics that show how well each and every silo is doing, while in fact the company’s overall performance may be disastrous.

  Three Reinforcing Mechanisms

  By defining these rich objectives, we made visible the overall complexity of the performance requirements (quality, quantity, on-time delivery, and cost reduction) and embedded them in everyone’s roles and objectives. Complexity was brought to the front line.

  Defining rich objectives is an important way to increase reciprocity within an organization. But in the end, such objectives are only an expression of intent. How can you create a work context such that individuals actually behave in accordance with these objectives? There are three reinforcing mechanisms that managers can use to increase the odds that people will behave according to the rich objectives—eliminating internal monopolies, reducing some resources, and creating adequate networks for interactions. We conclude our discussion of increasing reciprocity by considering the positive role these actions can play.

  Eliminate Internal Monopolies

  Monopolies take many forms. They can be administrations, companies, departments, or individuals. They may be upstream units that affect what can be done by downstream units or a specialist or expert role, such as a legal department.

  Monopolies cannot be avoided by others in the organization. Other units have no alternative but to work with the monopoly, so the units that depend on the cooperation of monopolies are stuck. Given that other units are fully dependent on them, monopolies do not take into account the needs and constraints of those units. Because they have total control of their own resources, monopolies can work around their own constraints.

  This is why monopolies, whatever form they take, become bureaucratic. They stress the importance of rules and create many of their own. Rules add legitimacy to the internal constraints the monopoly forces others to adjust to.2

  An internal monopoly can, however, be broken, either by making it contestable or by finding a partial substitute for it. By making it contestable, we mean that no function, by virtue of its organizational decision rights, should be protected from questioning by others about matters such as budgeting, investments, or even career decisions for its staff. If monopolies are immune from challenge over such decisions, they begin to exhibit silo behaviors.

  Invoking the dictum “the right person in the right place” is a very effective way for internal monopolies to ward off challenges. If an outsider questions the results, actions, or decisions of someone inside the monopoly, it is interpreted as a personal attack and a threat to efficiency. Monopolies, whether individuals or units, typically counter such attacks by claiming possession of special knowledge or expertise that the attacker does not possess and cannot possibly understand (the transceiver engineers at MobiliTele used to claim that the other units could never understand the complex evolution of the international standards for transceiver technology). But even if members of a function do possess expertise or knowledge that is relatively rare in the organization, that should not preclude others from having a say in the matter, whatever it might be.

  At the consumer goods company L’Oréal, for example, during its period of extremely rapid organic growth, every decision relating to the development and launch of new products was made by a team whose members represented R&D, manufacturing, sales, and communications. At the time, there was no dedicated marketing function. Management had decided that no function could or should have a monopoly on customer knowledge, customer insight, and customer-related decisions; no one function would be allowed to speak exclusively for the custom
er. Decisions about what products to develop and how and when to launch them were made through a confrontation of ideas brought forward and supported by the different participants. These decisions were made in what was sometimes called “the confrontation room.” In that room, everything and everyone could be contested, which is an efficient and effective way to push along the decision process and to get better decisions.

  In addition to making every group contestable, you can also break a monopoly by making it partly substitutable. To do this, you make sure there is some form of substitution available that provides an alternative to the monopoly and therefore keeps the people in the monopoly on their toes. The substitute may be available from other internal roles or from an outside source.

  Eliminating an internal monopoly at a robotics manufacturer. A manufacturer of robotics had a problem. The company was always late in launching innovations, among the last among its competitors to integrate new technologies into its products. What’s more, its costs were out of line with industry norms. Management explained the problem as one of psychology: “Our company is not innovative enough because our research and development engineers are not creative enough.” The solution was to require the engineers to attend creativity workshops. The initiative only made things worse.

  When we analyzed the work context, we realized that the real goal of the hardware and software units was to be recognized as the creator of a new innovation. After all, the responsible unit would often have a larger budget and more autonomy as a result. When hardware and software cooperated, however, it was difficult for the head of R&D to know which unit was really responsible for the subsequent innovation. Each unit’s behavior was therefore to work in isolation, as long as it took to guarantee that any innovation could be traced back unequivocally to its origin: “We are often the real creator of the new thing, but management doesn’t know it if the hardware and software teams bring their elements together too early in the process.”