• Why does this happen, when we know it before hand?

Unfortunately, too often, an unintended inference to the emphasis on data is “what cannot be measured, is unimportant” has crept into the subconscious collective mindset of many organizations. From my own research and discussions with leaders in business and education, a picture is beginning to emerge suggesting that key leaders seem to be either unable or unwilling to appreciate the value of intangibles that drive behavior and performance. Several recent studies of my own in illustrate this point.

Our study to gain insight into how national culture affect the success or failure of cross-nation ventures involving companies from different countries yielded insight into how executives factor cultural differences into due-diligence and implementation phases of a merger or acquisition. Results from this study indicated that executives were very aware of the importance of culture on the success of the venture. Yet they focused attention almost exclusively on data driven financial and operational issues. Vast amounts of effort was expended to analyze financial, operational, and market data in the due-diligence phase and to set firm, measurable, financial and operational goals for managers in the new venture with little actual effort dedicated to addressing the cultural differences. Despite knowledge that national cultures play a vital role in the success of cross-national ventures and that historically as many as 80% of these types of ventures fail, executives tended to ignore the intangible elements when it came to implementation.

• How can we explain this behavior?

I suggest that one possible contributor is that college graduates are being indoctrinated with an overemphasis on data-driven decision-making models and technical elements that emphasize memorization and regurgitation of data rather than the why, how, the big picture. A 1997 study by the California Commission on Teacher Credentialing found that 89% of high school and college faculty identified critical thinking as a primary objective yet only 9% included tasks in class that were clearly designed to promote it. Critical thinking involves identifying, analyzing, synthesizing, and evaluating information to yield actionable knowledge to make effective decisions. Colleges are turning out excellent technicians but poor innovative problem solvers who are conditioned to rely on digital data that defines the boundaries for thought. With the 90% who are conditioned technocrats, businesses are forced to try to train them to think beyond textbooks in finance, economics, computer programming, etc. to use their knowledge to generate action. For this 10/90 ratio to change, university curriculum must change to teach future leaders to connect the data dots between digital and human solutions.

Another contributing factor is the seduction of “big data”. With modern technology, companies collect massive amounts of data with the apparent mindset that more is better. Therefore, we struggle with the very human weakness of information overload that degrades information processing. Presented with the availability of massive amounts of data, people who have been conditioned with the notion of “what gets measured gets done” naturally fall back on what feels comfortable and familiar. So, business leaders ignore the “touchy, feely” because it makes them uncomfortable and cannot be measured, preferring to focus on hard data. The result is that correct data interpretations of data without considering the big picture organizational inter-relationships and intangibles contribute to the 80% failure rate.

• If critical thinking is so important then why aren’t colleges and universities doing more to develop it?
• Is “big data” really improving decision-making?

Another intangible getting much attention is employee engagement. Multiple studies have shown that organizations with employees who are committed personally and emotionally to the success of the organization enjoy superior success and superior value. They are better at digesting relevant data and creating something new from which emerge ideas and innovation. Yet, discussions with numerous business executives suggest a fundamental lack of understanding of what employee engagement is and, more importantly, how to develop it. In another study in which I am involved, we found that only 22% of the companies in the S&P 500 have the skills, or internal environment, needed to create new knowledge that translates into greater market valuations. Apparently, many companies are failing to create the environment that elicits the emotional commitment from employees from which emerge ideas for innovation, improvements, and teamwork. Therefore, many companies waste the vast resources committed to digital technology and “big data”.

• What can be done?

Peter Drucker promoted the concept of the knowledge worker but educational institutions appear to be failing to train future leaders how to THINK. College faculty should dedicate the time to employ techniques proven to help develop critical thinking like challenging logic on papers and actively embrace technology to engage students in online discussion forums to extend and deepen the thought process. Executives give lip service to intangibles like “culture” and “employee engagement” claiming to recognize the potential yet fall back on familiar processes and training that focuses on hard data. Executives must embrace intangible elements to develop initiatives designed to address them using creative, indirect, measures if need be.

The 21^st Century world is and will continue to be increasingly driven by knowledge. Successful organizations in the 21^st Century will commit to understanding that knowledge is multi-dimensional and considering intangibles alongside data with the confidence that long-term results will emerge in tangible terms of success and value creation. What you can’t measure … matters!

About the author:

Herb Nold is a professor of business administration at Polk State College, USA, and managing director of AgilityINsights USA, LLC.

Organizations around the globe in all sectors continue a trend of increasing size and complexity that began over 100 years ago with the business strategies of the likes of Carnegie and Rockefeller. New and emerging technologies for communication and data sharing have accelerated this process in recent decades. We view this process as a natural and inevitable occurrence due, if for no other reason, to simple economics. Expenses will rise through time in many ways that management cannot prevent no matter how much they try. Those pesky employees always seem to want and expect raises, healthcare expenses increase, rents go up every year according to contracts, governments seem to want a greater piece of the action, and the list goes on and on. If top line revenues remain constant and expenses increase due to any or all of these sources the squeeze point becomes the bottom line. These are simple economic realities which force executives to constantly look for ways to increase the top line and keep their jobs.

There are, of course, any number of ways to increase the top line some of which include expanding market share in current markets, expanding into new markets, and introducing new products or services using an almost endless list of strategies. This is inevitable yet many, if not most, executives continue running very large enterprises using management techniques and structures developed in an industrial age which is very different from the rapidly changing, complex, business environment of the 21st Century. Argyris and Schon pointed out that the management challenges in business where there is little or very slow change is very different from those in uncertain environments. We would suggest that it would be difficult today to identify ANY businesses not in uncertain environments. If increasing complexity is a natural and unavoidable condition and that uncertainty and rapid change influence virtually every organization then what do we know for sure?

What we do know is that we don’t know what opportunities or threats will emerge or what the best way to take advantages of opportunities or respond to threats will be. We also know that whatever course of action is decided the decision must be made quickly and execution must be swift and decisive. Additionally, because of the complexity of organizations effective decision-making by one, autocratic, individual is likely a formula for failure. We also know that the overwhelming body of knowledge within an organization exists in the minds and experiences of people, particularly knowledge workers [Link 1].

The Borg – Ultimate Knowledge Collective

The “Star Trek, Next Generation” TV series introduced the ultimate evil, the Borg. The Borg society consisted of millions of individuals who were all connected mentally through a vast neural network so that the experiences of any single individual were immediately shared with the entire collective. The result was that with the power of millions of minds sensing then working on a problem, solutions were developed very quickly allowing the Borg to adapt rapidly to any threat that the intrepid crew of the Enterprise dreamed up. The ability to sense, evaluate, implement, and adapt to threats faster than our heroes made them nearly invincible. Ultimately, our heroes defeated the Borg by introducing a virus into their network disrupting their ability to sense individual experiences and apply the collective knowledge of millions of individuals to find solutions. We suggest that the most effective organizations manage complexity and uncertainty by accessing the collective knowledge of all individuals through social networks connecting a performance triangle of leadership, systems, and culture of the organization.

Viruses Disrupt the Performance Triangle

People, through collaboration, purpose, and relationships connect a performance triangle of leadership, systems, and culture and drive the organizations ability to effectively manage complex structures in rapidly changing situations. The triangle model [Link 2] emerged over a 10-year period from information gathered from over 100 business case studies involving organizations in different industries throughout the world. Statistical analysis of the results of a diagnostic survey conducted with 50 of these organizations between 2006 and 2011 established the validity of the performance triangle model and provided deep insights into the potential for dealing with the growing complexity of organizations and the barriers that keep employees from using and sharing their knowledge. The research indicated that viruses disrupt or inhibit that flow of knowledge among people that degrade the ability of the organization to sense what is happening and tap into the collective knowledge base. These viruses are insidious because they are typically unseen and undetected because they exist in the minds of individuals or groups of individuals on a mostly subconscious level. We have sat in countless meetings and observed the highest ranking individual dominate the idea pool while all others simple attend. In many organizations, we have listened closely to talk in the hallway and other places, away from earshot, to see how people distrust management and each other therefore they are unwilling to share what they know. These would be two examples of organizational viruses but the list is endless and cannot be observed without looking and listening closely through an objective electron microscope. We all know that successful managers advance within an organization because they fit in and promote the values, beliefs, and assumptions of the organization that made it successful. These highly successful managers are unlikely to detect disruptive viruses because they are themselves infected. Some successful managers observe the outward signs of these viruses and a few are able to detect viruses but truly rare are those leaders who can remain objective enough to go further and actually do something to eliminate the viruses.

Get Rid of those Nasty Viruses

After years of stalling growth, the new CEO of high-tech firm diagnosed his performance triangle to discover that the organization had inadvertently introduced viruses. Well-intentioned but flawed leadership introduced formal routines and processes that had the effect of disrupting the flow of knowledge and essentially apply brakes to the company’s growth. The systems formalities have names such as TQM, extensive process orientation, request an approval forms, and scorecards that required frequent updates. When organizations grow fast, most entrepreneurs install a leadership team and introduce professional tools and routines to cope with the growing complexity. However, much of these instruments added to the complexity with managers hiding behind processes rather than interact with people to collaborate and use their collective knowledge. “We follow rules rather than to communicate and interact” was the key realization from a diagnostic workshop with the new CEO. The cleanup was simple. He decided with his management team to rework their management system and retool the box with the perspective of (1) supporting the exchange of knowledge of their well-trained staff and (2) relating them to collaborate rather than to engage in well-intended but cumbersome routines. By simply detecting the viruses and cleaning up an infected bureaucracy, the organization returned to its growth path.

What happens if you don’t – deal with complexity by tapping into the vast reservoir of your employee’s knowledge? As the CEO of a regional utility firm confirmed, viruses creep slowly into the operating system of your firm. Unwillingly and unknowingly, they divert your attention from what truly matters and use up time that is not available to tackle the real challenges. The call for help came on a Saturday morning from his office. The first visit revealed a desk with folders full of pending issues, a closed door to his office assistant, dead silence on the executive floor during prime hours, and decisions that always migrated to the top! The diagnostic confirmed our gut-feel: tight managerial performance routines, detailed Management by Objectives tools, stifling bureaucracy, and closed-door conversations prevented any free flow of knowledge, kept employees within tight boundaries, and prevented creativity. Combined with the ongoing deregulation of the industry, the CEO faced a managerial situation that required an instant fix – on behaviors and its guiding managerial systems.

Conclusion – Become Borg-like

So, one key to effectively navigating a complex organization that is constantly becoming more and more complex in an ever changing world of uncertainty is to become more Borg-like. Nurturing neural networks to facilitate the flow of knowledge throughout the organization comprised of many individuals becomes essential for effective sense-making and to get critical information to the right people at the right time. Successful 21st Century companies will develop structures very different from industrial age command and control designs that emphasize free flow of knowledge throughout the organization. Doing this, however, requires recognition of infecting viruses that block collaboration, blur common purpose, and destroy productive relationships among people that degrade effectiveness to managing complexity. Firms with Borg-like knowledge networks, free or with reduced viruses will survive and prosper while those that cannot will fail due to the weight of their own complexity and constant threats from an uncertain environment that, like Star Fleet, will never give up and will always find a new approach to try.

About the Authors

Dr. Herb Nold, Professor of Business Administration, Polk State College, Florida, USA. Winner of the Emerald Literati Network 2013 Award for Excellence for ‘Linking Knowledge Processes with Firm Performance: Organizational Culture’ in Journal of Intellectual Capital and the 2013 International Award for Excellence for ‘Using Knowledge Processes to Improve Performance and Promote Change’ in the International Journal of Knowledge Culture, and Change Management

Lukas Michel, MD of AgilityINsights l Sphere Advisors AG, Switzerland. Author of “The Performance Triangle” and diagnostic mentor to management teams worldwide.

[Link 1: Linking knowledge processes with firm performance: organizational culture. http://www.emeraldinsight.com/journals.htm?show=abstract&articleid=17010190 ]

[Link 2: The Performance Triangle: A Diagnostic Tool to Help Leaders Translate Knowledge into Action for Higher Agility: http://ijmoc.cgpublisher.com/product/pub.258/prod.16 ]

L. Michel, “THE PERFORMANCE TRIANGLE: Diagnostic Mentoring to Manage Organizations and People for Superior Performance in Turbulent Times, LID Publishing, London, September 2013.