0:00:00.739,0:00:02.739
I have spent the last years

0:00:02.739,0:00:05.398
trying to resolve two enigmas:

0:00:05.398,0:00:09.759
Why is productivity so disappointing

0:00:09.759,0:00:11.641
in all the companies where I work?

0:00:11.641,0:00:15.335
I have worked with more than 500 companies.

0:00:15.335,0:00:17.780
Despite all the technological advances --

0:00:17.780,0:00:21.072
computers, I.T., communications, telecommunications,

0:00:21.072,0:00:23.433
the Internet.

0:00:23.433,0:00:24.831
Enigma number two:

0:00:24.831,0:00:27.863
Why is there so little engagement at work?

0:00:27.863,0:00:29.967
Why do people feel so miserable,

0:00:29.967,0:00:33.617
even actively disengaged?

0:00:33.617,0:00:35.141
Disengaging their colleagues.

0:00:35.141,0:00:39.872
Acting against the interest of their company.

0:00:39.872,0:00:43.976
Despite all the affiliation events,

0:00:43.976,0:00:47.973
the celebration, the people initiatives,

0:00:47.973,0:00:50.572
the leadership development programs to train

0:00:50.572,0:00:54.956
managers on how to better motivate their teams.

0:00:54.956,0:00:56.694
At the beginning, I thought there was

0:00:56.694,0:00:58.663
a chicken and egg issue:

0:00:58.663,0:01:01.215
Because people are less engaged, [br]they are less productive.

0:01:01.215,0:01:03.452
Or vice versa, because they are less productive,

0:01:03.452,0:01:05.643
we put more pressure and they are less engaged.

0:01:05.643,0:01:07.511
But as we were doing our analysis

0:01:07.511,0:01:09.432
we realized that there was a common root cause

0:01:09.432,0:01:10.815
to these two issues

0:01:10.815,0:01:15.371
that relates, in fact, to the basic [br]pillars of management.

0:01:15.371,0:01:18.541
The way we organize is based on two pillars.

0:01:18.541,0:01:21.294
The hard -- structure, processes, systems.

0:01:21.294,0:01:22.518
The soft --

0:01:22.518,0:01:27.973
feelings, sentiments, interpersonal[br]relationships, traits, personality.

0:01:27.973,0:01:29.445
And whenever a company

0:01:29.445,0:01:33.155
reorganizes, restructures, reengineers,

0:01:33.155,0:01:35.603
goes through a cultural transformation program,

0:01:35.603,0:01:37.633
it chooses these two pillars.

0:01:37.633,0:01:39.682
Now, we try to refine them,

0:01:39.682,0:01:41.578
we try to combine them.

0:01:41.578,0:01:43.206
The real issue is --

0:01:43.206,0:01:45.243
and this is the answer to the two enigmas --

0:01:45.243,0:01:48.177
these pillars are obsolete.

0:01:48.177,0:01:50.859
Everything you read in business books is based

0:01:50.859,0:01:52.524
either on one or the other

0:01:52.524,0:01:53.791
or their combination.

0:01:53.791,0:01:55.105
They are obsolete.

0:01:55.105,0:01:57.402
How do they work

0:01:57.402,0:01:59.689
when you try to use these approaches

0:01:59.689,0:02:01.837
in front of the new complexity of business?

0:02:01.837,0:02:04.834
The hard approach, basically [br]is that you start from strategy,

0:02:04.834,0:02:08.463
requirements, structures, processes, [br]systems, KPIs, scorecards,

0:02:08.463,0:02:11.340
committees, headquarters, hubs, clusters,

0:02:11.340,0:02:12.450
you name it.

0:02:12.450,0:02:17.881
I forgot all the metrics, incentives, committees, [br]middle offices and interfaces.

0:02:17.881,0:02:19.876
What happens basically on the left,

0:02:19.876,0:02:23.140
you have more complexity, the [br]new complexity of business.

0:02:23.140,0:02:27.427
We need quality, cost, reliability, speed.

0:02:27.427,0:02:29.813
And every time there is a new requirement,

0:02:29.813,0:02:31.292
we use the same approach.

0:02:31.292,0:02:34.405
We create dedicated structure processed systems,

0:02:34.405,0:02:37.643
basically to deal with the [br]new complexity of business.

0:02:37.643,0:02:41.382
The hard approach creates just complicatedness

0:02:41.382,0:02:43.220
in the organization.

0:02:43.220,0:02:44.798
Let's take an example.

0:02:44.798,0:02:47.694
An automotive company, the engineering division

0:02:47.694,0:02:49.486
is a five-dimensional matrix.

0:02:49.486,0:02:51.518
If you open any cell of the matrix,

0:02:51.518,0:02:54.531
you find another 20-dimensional matrix.

0:02:54.531,0:02:57.394
You have Mr. Noise, Mr. Petrol Consumption,

0:02:57.394,0:02:59.352
Mr. Anti-Collision Properties.

0:02:59.352,0:03:01.182
For any new requirement,

0:03:01.182,0:03:03.057
you have a dedicated function

0:03:03.057,0:03:05.846
in charge of aligning engineers against

0:03:05.846,0:03:07.394
the new requirement.

0:03:07.394,0:03:09.993
What happens when the new [br]requirement emerges?

0:03:09.993,0:03:12.085
Some years ago, a new requirement

0:03:12.085,0:03:13.932
appeared on the marketplace:

0:03:13.932,0:03:16.083
the length of the warranty period.

0:03:16.083,0:03:19.018
So therefore the new requirement is repairability,

0:03:19.018,0:03:20.518
making cars easy to repair.

0:03:20.518,0:03:24.524
Otherwise when you bring the car [br]to the garage to fix the light,

0:03:24.524,0:03:26.781
if you have to remove the engine

0:03:26.781,0:03:28.110
to access the lights,

0:03:28.110,0:03:30.549
the car will have to stay one week in the garage

0:03:30.549,0:03:33.436
instead of two hours, and the [br]warranty budget will explode.

0:03:33.436,0:03:36.381
So, what was the solution using the hard approach?

0:03:36.381,0:03:39.431
If repairability is the new requirement,

0:03:39.431,0:03:41.520
the solution is to create a new function,

0:03:41.520,0:03:43.693
Mr. Repairability.

0:03:43.693,0:03:47.636
And Mr. Repairability creates [br]the repairability process.

0:03:47.636,0:03:51.494
With a repairability scorecard, [br]with a repairability metric

0:03:51.494,0:03:54.308
and eventually repairability incentive.

0:03:54.308,0:03:58.072
That came on top of 25 other KPIs.

0:03:58.072,0:04:01.578
What percentage of these people is variable compensation?

0:04:01.578,0:04:05.405
Twenty percent at most, divided by 26 KPIs,

0:04:05.405,0:04:09.502
repairability makes a difference of 0.8 percent.

0:04:09.502,0:04:11.562
What difference did it make in their actions,

0:04:11.562,0:04:14.184
their choices to simplify? Zero.

0:04:14.184,0:04:17.849
But what occurs for zero impact? [br]Mr. Repairability, process,

0:04:17.849,0:04:22.522
scorecard, evaluation, coordination [br]with the 25 other coordinators

0:04:22.522,0:04:24.418
to have zero impact.

0:04:24.418,0:04:26.959
Now, in front of the new complexity of business,

0:04:26.959,0:04:29.896
the only solution is not drawing boxes

0:04:29.896,0:04:32.322
with reporting lines.

0:04:32.322,0:04:35.407
It is basically the interplay.

0:04:35.407,0:04:37.978
How the parts work together.

0:04:37.978,0:04:42.710
The connections, the interactions, the synapses.

0:04:42.710,0:04:47.213
It is not the skeleton of boxes, [br]it is the nervous system

0:04:47.213,0:04:50.250
of adaptiveness and intelligence.

0:04:50.250,0:04:53.150
You know, you could call it cooperation, basically.

0:04:53.150,0:04:55.689
Whenever people cooperate,

0:04:55.689,0:04:59.617
they use less resources. In everything.

0:04:59.617,0:05:02.149
You know, the repairability issue

0:05:02.149,0:05:04.901
is a cooperation problem.

0:05:04.901,0:05:08.122
When you design cars, please take into account

0:05:08.122,0:05:10.830
the needs of those who will repair the cars

0:05:10.830,0:05:13.937
in the after sales garages.

0:05:13.937,0:05:16.554
When we don't cooperate we need more time,

0:05:16.554,0:05:20.336
more equipment, more systems, more teams.

0:05:20.336,0:05:25.427
We need -- When procurement, supply [br]chain, manufacturing don't cooperate

0:05:25.427,0:05:28.205
we need more stock, more inventories, [br]more working capital.

0:05:28.205,0:05:30.146
Who will pay for that?

0:05:30.146,0:05:32.108
Shareholders? Customers?

0:05:32.108,0:05:33.439
No, they will refuse.

0:05:33.439,0:05:36.248
So who is left? [br]The employees,

0:05:36.248,0:05:38.956
who have to compensate through their super

0:05:38.956,0:05:42.276
individual efforts for the lack of cooperation.

0:05:42.276,0:05:45.944
Stress, burnout, they are [br]overwhelmed, accidents.

0:05:45.944,0:05:48.768
No wonder they disengage.

0:05:48.768,0:05:52.565
How do the hard and the soft[br]try to foster cooperation?

0:05:52.565,0:05:57.195
The hard: In banks, when there is a problem

0:05:57.195,0:06:00.255
between the back office and the front office,

0:06:00.255,0:06:02.345
they don't cooperate. What is the solution?

0:06:02.345,0:06:05.440
They create a middle office.

0:06:05.440,0:06:07.476
What happens one year later?

0:06:07.476,0:06:09.484
Instead of one problem [br]between the back and the front,

0:06:09.484,0:06:10.838
now I have two problems.

0:06:10.838,0:06:11.961
Between the back and the middle

0:06:11.961,0:06:14.177
and between the middle and the front.

0:06:14.177,0:06:16.642
Plus I have to pay for the middle office.

0:06:16.642,0:06:19.900
The hard approach is unable to foster cooperation.

0:06:19.900,0:06:24.336
It can only add new boxes, [br]new bones in the skeleton.

0:06:24.336,0:06:25.971
The soft approach:

0:06:25.971,0:06:29.800
To make people cooperate, we need [br]to make them like each other.

0:06:29.800,0:06:31.494
Improve interpersonal feelings,

0:06:31.494,0:06:34.450
the more people like each other, [br]the more they will cooperate.

0:06:34.450,0:06:36.221
It is totally wrong.

0:06:36.221,0:06:38.621
It is even counterproductive.

0:06:38.621,0:06:41.037
Look, at home I have two TVs. Why?

0:06:41.037,0:06:43.909
Precisely not to have to cooperate with my wife.

0:06:43.909,0:06:45.549
(Laughter)

0:06:45.549,0:06:48.453
Not to have to impose tradeoffs to my wife.

0:06:48.453,0:06:52.463
And why I try not to impose tradeoffs to my wife

0:06:52.463,0:06:55.130
is precisely because I love my wife.

0:06:55.130,0:06:58.355
If I didn't love my wife, one TV would be enough:

0:06:58.355,0:07:00.850
You will watch my favorite football game,

0:07:00.850,0:07:03.405
if you are not happy, how is the book or the door?

0:07:03.405,0:07:04.608
(Laughter)

0:07:04.608,0:07:06.489
The more we like each other,

0:07:06.489,0:07:09.102
the more we avoid the real cooperation

0:07:09.102,0:07:13.276
that would strain our relationships [br]by imposing tough tradeoffs.

0:07:13.276,0:07:16.283
And we go for a second TV or we escalate

0:07:16.283,0:07:19.207
the decision above for arbitration.

0:07:19.207,0:07:23.916
Definitely, these approaches are obsolete.

0:07:23.916,0:07:27.699
To deal with complexity, to enhance the nervous system,

0:07:27.699,0:07:30.961
we have created what we call [br]the smart simplicity approach

0:07:30.961,0:07:32.481
based on simple rules.

0:07:32.481,0:07:34.743
Simple rule number one:

0:07:34.743,0:07:37.768
Understand what others do.

0:07:37.768,0:07:39.665
What is their real work?

0:07:39.665,0:07:43.300
We need to go beyond the boxes,

0:07:43.300,0:07:47.318
the job descriptions, beyond the surface

0:07:47.318,0:07:50.823
of the container, to understand the real content.

0:07:50.823,0:07:53.531
Me, designer, if I put a wire here,

0:07:53.531,0:07:55.534
I know that it will mean that we will have to

0:07:55.534,0:07:58.100
remove the engine to access the lights.

0:07:58.100,0:08:00.948
Second, you need to reenforce integrators.

0:08:00.948,0:08:04.808
Integrators are not middle [br]offices, they are managers,

0:08:04.808,0:08:06.569
existing managers that you reinforce

0:08:06.569,0:08:09.003
so that they have power and interest

0:08:09.003,0:08:11.166
to make others cooperate.

0:08:11.166,0:08:14.898
How can you reinforce your [br]managers as integrators?

0:08:14.898,0:08:16.373
By removing layers.

0:08:16.373,0:08:17.737
When there are too many layers

0:08:17.737,0:08:19.287
people are too far from the action,

0:08:19.287,0:08:21.401
therefore they need KPIs, metrics,

0:08:21.401,0:08:25.729
they need poor proxies for reality.

0:08:25.729,0:08:27.331
They don't understand reality

0:08:27.331,0:08:30.431
and they add the complicatedness of metrics, KPIs.

0:08:30.431,0:08:32.883
By removing rules -- the bigger we are,

0:08:32.883,0:08:34.516
the more we need integrators,

0:08:34.516,0:08:36.837
therefore the less rules we must have,

0:08:36.837,0:08:40.731
to give discretionary power to managers.

0:08:40.731,0:08:41.858
And we do the opposite --

0:08:41.858,0:08:44.044
the bigger we are, the more rules we create.

0:08:44.044,0:08:47.294
And we end up with the Encyclopedia [br]Britannica of rules.

0:08:47.294,0:08:49.394
You need to increase the quanitity of power

0:08:49.394,0:08:51.122
so that you can empower everybody

0:08:51.122,0:08:54.108
to use their judgment, their intelligence.

0:08:54.108,0:08:56.259
You must give more cards to people

0:08:56.259,0:08:59.616
so that they have the critical mass of cards

0:08:59.616,0:09:01.575
to take the risk to cooperate,

0:09:01.575,0:09:03.330
to move out of insulation.

0:09:03.330,0:09:05.694
Otherwise, they will withdraw. They will disengage.

0:09:05.694,0:09:07.940
These rules, they come from game theory

0:09:07.940,0:09:10.168
and organizational sociology.

0:09:10.168,0:09:13.020
You can increase the shadow of the future.

0:09:13.020,0:09:15.921
Create feedback loops that expose people

0:09:15.921,0:09:18.522
to the consequences of their actions.

0:09:18.522,0:09:20.466
This is what the automotive company did

0:09:20.466,0:09:23.256
when they saw that Mr. Repairability had no impact.

0:09:23.256,0:09:24.891
They said to the design engineers:

0:09:24.891,0:09:29.586
Now, in three years, when the new [br]car is launched on the market,

0:09:29.586,0:09:32.530
you will move to the after sales [br]network, and become in charge

0:09:32.530,0:09:34.905
of the warranty budget,

0:09:34.905,0:09:38.284
and if the warranty budget explodes,

0:09:38.284,0:09:40.951
it will explode in your face. (Laughter)

0:09:40.951,0:09:46.892
Much more powerful than 0.8 [br]percent variable compensation.

0:09:46.892,0:09:50.614
You need also to increase reciprocity,

0:09:50.614,0:09:54.329
by removing the buffers that make us self-sufficient.

0:09:54.329,0:09:56.801
When you remove these buffers,

0:09:56.801,0:09:59.798
you hold me by the nose, I hold you by the ear.

0:09:59.798,0:10:01.180
We will cooperate.

0:10:01.180,0:10:02.720
Remove the second TV.

0:10:02.720,0:10:04.964
There are many second TVs at work

0:10:04.964,0:10:06.265
that don't create value,

0:10:06.265,0:10:10.953
they just provide dysfunctional self-sufficiency.

0:10:10.953,0:10:13.382
You need to reward those who cooperate

0:10:13.382,0:10:15.061
and blame those who don't cooperate.

0:10:15.061,0:10:18.130
The CEO of The Lego Group,

0:10:18.130,0:10:20.953
Jorgen Vig Knudstorp, has a great way to use it.

0:10:20.953,0:10:23.858
He says, blame is not for failure,

0:10:23.858,0:10:28.393
it is for failing to help or ask for help.

0:10:28.393,0:10:30.772
It changes everything.

0:10:30.772,0:10:33.292
Suddenly it becomes in my[br]interest to be transparent

0:10:33.292,0:10:35.332
on my real weaknesses, my real forecast,

0:10:35.332,0:10:37.418
because I know I will not be blamed if I fail,

0:10:37.418,0:10:41.286
but if I fail to help or ask for help.

0:10:41.286,0:10:44.213
When you do this, it has a lot of implications

0:10:44.213,0:10:47.158
on organizational design.

0:10:47.158,0:10:49.576
You stop drawing boxes, dotted lines, full lines;

0:10:49.576,0:10:50.966
you look at their interplay.

0:10:50.966,0:10:53.945
It has a lot of implications on financial policies

0:10:53.945,0:10:55.159
that we use.

0:10:55.159,0:10:57.781
On human resource management practices.

0:10:57.781,0:11:00.205
When you do that, you can manage complexity,

0:11:00.205,0:11:01.798
the new complexity of business,

0:11:01.798,0:11:04.731
without getting complicated.

0:11:04.731,0:11:08.381
You create more value with lower cost.

0:11:08.381,0:11:12.955
You simultaneously improve [br]performance and satisfaction at work

0:11:12.955,0:11:15.684
because you have removed the common root cause

0:11:15.684,0:11:17.300
that hinders both.

0:11:17.300,0:11:22.010
Complicatedness: This is your [br]battle, business leaders.

0:11:22.010,0:11:24.837
The real battle is not against competitors.

0:11:24.837,0:11:27.258
This is rubbish, very abstract.

0:11:27.258,0:11:29.921
When do we meet competitors to fight them?

0:11:29.921,0:11:32.822
The real battle is against ourselves,

0:11:32.822,0:11:36.176
against our bureaucracy, our complicatedness.

0:11:36.176,0:11:39.333
Only you can fight, can do it.

0:11:39.333,0:11:41.420
Thank you.

0:11:41.420,0:11:44.112
(Applause)