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|In: Industry Commentary|Last Updated:

Can an organization learn?

In response to the last two columns, which talked about the barriers to organizational learning and how to overcome them, a subscriber challenged me on this point. Learning, he said, is something people do, not organizations.

I agree, organizations aren’t just people, only bigger. As has been pointed out in KJR more than once, they’re a different type of creature than human beings, with different motivations and patterns of behavior (see “What corporations and spleens have in common,” Keep the Joint Running, 5/5/2003).

Can organizations learn? As is usually the case, the answer depends on how you define “learn.” Since my scientific training is in sociobiology, I define it operationally: To learn is to change behavior in an adaptive way based on experience.

If that’s the definition, the answer is an unequivocal “yes” — organizations do change their behavior based on what they experience. They learn through changes in the behavior of their executives, managers and staff, just as animals learn through changes in the behavior of individual neurons. The difference: Executives, managers and staff can prevent the organization from learning if it isn’t in their best interests.

To illustrate the point, here is a case study, sent in by a subscriber who really, really needs to remain anonymous:

The company I worked for had several divisions. I was a member of the smallest and we were led by a rogue Product Manager who thought we should write software the clients loved and could understand intuitively.

So we sat with clients, visited their offices to watch them work, etc. Our software won design awards, gained more than 50% market share in its space, and our engineers got standing ovations at user conferences.

At our annual company meeting the CFO would go over “the numbers” broken out by division which was fine when our division was tiny but as we grew people began to realize that we generated several times as much revenue per person as the other division — we had 1/10 the total resources generating 1/3 the quarterly revenue.

Then it got childish. The “numbers” were no longer broken out by division. There was grumbling about special people making more money in “that” division when everyone was working “hard.” The divisional portion of the yearly bonus was discontinued in favor of an overall company performance bonus.

But lo and behold, the success continued. At the peak a division containing 1/10 of all resources serviced 40% of all clients, and generated more than half the new software sales revenue vs. all other divisions combined. That factor of 10 revenue generation ratio was just too much and we soon found our core members redeployed to other projects, new mandates to use code libraries and architecture based on the other divisions’ products, etc.

The moral of the story is that we succeeded for the customer for awhile, as evidenced by our developer-to-customer-support ratio (2 to 1) vs the other divisions (1 to 4) and support-to-customer ratio (1 per 700 vs 1 per 40).

But we failed in the long run because we couldn’t bring the rest of the company along. Our success generated jealousy and animosity in the VP level office suites and since we were so small (1/10 the VP’s) politically we never stood a chance. Once the high and mighty hit on the excuse above we got squashed like a bug.

The company was sold a few years later to a large software accumulator and is now being milked for its support fees. Which as you notice is great when you have a buggy, hard to use product with proprietary data and you charge high support and maintenance fees. But when customers don’t need support because their old version works just fine that model breaks down.

The end result was the mass exodus of the best and brightest and now only a handful of the original group remain. All of us are now seeking to recapture that 5-6 year golden era before we were told to do less well so as not to offend our co-workers.

Truth is definitely weirder than fiction.

If this were fiction — say, an episode of House — we’d put these symptoms on a whiteboard and figure out what disease explains them all. My diagnosis: Weak leadership.

A strong CEO would have created an environment that recognized and emulated success, building it into the corporation’s structure, compensation, and culture. A strong CEO would have recognized that in business, “fair” doesn’t mean equality. It means meritocracy.

This CEO opted for “mediocracy” instead.

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|In: Leadership|Last Updated:

Last week’s column set some readers’ teeth on edge (“Why Johnny Corporation can’t learn,” Keep the Joint Running, 11/19/2007). The issue was its negative tone.

The column explained why corporations rarely learn from their mistakes and even more rarely learn from their successes. “Don’t bring us problems — bring us solutions,” was the gist of the complaints.

Fair enough, so long as we all agree that unless you understand the underlying dynamics of a problem you’re unlikely to find a solution.

Solutions to these two problems are especially tough to implement because doing so calls for challenging some very popular business beliefs and practices. In particular, companies that truly want to be “learning organizations” will have to thoroughly and deeply re-think their approach to accountability, to metrics, and to compensation.

The first, and possibly most important step you can take is to give up one of the most cherished notions in American pop business culture — the need to hold people accountable. KJR has covered this subject before (see “The dark side of accountability,” 11/3/2003).

Among the many disadvantages of a hold-people-accountable business culture is that it pretty much guarantees that anyone associated with a mistake will do everything possible to hide it — to sweep it under the rug, bury it in a quarry, or put sawdust in the crankcase and call it a mint-condition classic.

Or, if there’s no way to hide the mistake, they’ll find some poor schnook to serve as a scapegoat. Root cause analysis? The root cause is that this schnook here caused the problem.

Think anyone will admit to a mistake under these circumstances? Of course not.

So Lesson One in creating a learning organization is to create a culture of responsibility. That means consistently praising everyone who identifies mistakes and takes the lead in fixing them, without ever paying the least bit of attention to who made the mistake in the first place.

The next place to look is metrics. Last week’s column pointed out that when your metrics define failure as success and vice versa, they guarantee you’ll repeat and extend your mistakes because you always get what you measure.

The best metrics assess your progress toward real, meaningful goals. They aren’t proxies or indexes, and they don’t assess intermediate results.

To illustrate, imagine three police departments. The first measures success by the ratio of arrests it makes to crimes committed. The crime rate goes up, not down, because the city’s peace officers are insufficiently concerned about determining who actually committed each crime, and even less concerned about making sure the evidence they present isn’t thrown out because of irregularities.

The second police department, headed by wiser leaders, measures the ratio of convictions to crimes. Much better. For the most part, its officers take care to arrest only those who seem to be guilty.

Much better, but still not as good as the third police department, which measures its success in terms of overall public safety.

Which is why Lesson Two in creating a learning organization is to choose your goals wisely and measure them carefully. Doing so points you in the right direction and makes sure you know success and failure when you see them.

Lesson Three is simply stated but difficult to put into practice: Align compensation. It’s particularly important if you want to learn from success.

This isn’t a matter of rewards and motivation, because compensation, properly understood, isn’t about rewards and motivation. It’s about the most tangible form of communication a company has — what it pays for. To understand this point, compare these two phrases: “Here’s what we want you to do,” and “Here’s what we’re paying you to do.”

The latter packs a much stronger punch, don’t you think?

Aligning compensation means defining acceptable performance as delivering results and strong performance as delivering repeatable results. Exceptional performance? That means repeating the results of others, not having them repeat yours.

Whether the subject is reusable software modules, successful business practices, or borrowing another employee’s PowerPoint deck, if you want a company that learns from its successes you had better provide the highest compensation to those employees who find those successes and learn from them.

Even this is dangerous, by the way. Because if you aren’t careful you’ll stifle innovation along the way.

It has to be that way. Learning from success means you don’t reinvent the wheel.

Innovation means you do.

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