Welcome back. I'm Mike Useem, as you know, I'm on the faculty here at the Wharton School and our fourth and final module on human and social capital, the managing of people around you at work, is designing and changing the organization's architecture. Designing and changing. So you want to think about design and we going to think about the, in some sense, even more difficult problem of changing a design once we have it in place. So we're going to begin with design and really it's nothing more than thinking about, I like the word architecture for this. How people are organize divided how they report up to one boss or maybe several bosses. And we're not going to touch on more on a few concepts on a particular slide you see right now, I have several those in red that will be in our conversation as we go forward. But I'd put that in front of us, all those concepts just as kind of a reference to issues you're going to want to think about as you do think about organizational architecture or changing the design that you have in place. And to get us going on this, I'm going to have you work here for a company called Rose Company. It's a manufacturing firm and it has just used the nomenclature of the field here. It has a very functional organization. In a sense that there are a number of production facilities and the VP for, let's say, finance in a given facility reports directly up to the executive vice president for finance at headquarters. The plant manager has some influence on control over that the local VP for finance but not completely. And as result to that, in this particular case, some of this production facilities aren't doing too well. And the company does decided, looking now, moving from the top diagram to the bottom diagram to change the organizational design by grouping all those functions. By which we mean these more technical skill areas like accounting and finance and marketing and operations, to group them together under an umbrella at the top of which is the plan manager. So it's a rather significant and almost radical break from the past. The plant manager can hire and fire his or her own chief financial officer. The CFO at headquarters is going to weigh in on that of course but the plant manager is delegated responsibility for everything and they have to think, to use a phrase here, like a general manager. They've gotta manage everything about the people in their setting, and to make it a bit more challenging, they're also responsible now for results. So we're going to pinpoint accountability and responsibility. And a new plant manager, it's called the Jackson Plant there. And as we make that move, everything else being equal, you've got motivated employees, you've got a pay system that makes sense. You're set to make good and timely decisions. The work is interesting. How you organize people? What the reporting relations are separately? Also, has a profound impact on the willingness of people to give their all, to get the right job done. With that being said as a kind of a preamble for where we're going, I'm going to take us into a particularly difficult situation at a processed food maker. If you've ever bought a bottle for a child of pureed carrots or potatoes, the company here, name changed to protect the identity of the company, makes that kind of product. The problem that the company is facing at the very top is that the market for this form of baby food is, quote, mature. Growth is slow. Investors, especially those that love to see companies grow are beginning to get out of the stock because there's company's doing fine, but there's not much growth, a couple percent per year compared to some companies that can grow 5% or 8% or 12% per year. Now, to bring this down to a particular setting, there is a lot of pressure on a regional sales manager. Her name is Brenda Cooper. She's in the ten box on the right-hand side of the image there, and she takes over the job here of running the southeast region for Hausser Food. She's got a great job, she's been trained in management, she is new to the company. But it's a great job because if she does well, she's on a track to move up, be paid more, and take greater responsibility over time. Within her operating area, here's an organizational design statement, the teams are organized, the sales team are organized state by state. You see right here, the Florida sales team, for example. That's the way it works. It kind of makes sense, because we sell geographically, Florida, South Carolina, Mississippi, and so on. And so, each sales team is responsible for the sales in any given region. Brenda's job is to ensure that the nationally set targets for a given year, maybe a 4% growth, are achieved by each of her state sales teams. So she's at the office, let's make it Atlanta, Georgia headquarters for that region, and she looks at the sales numbers for the various state sales teams in her region. And she's startled to learn that one in particular, Florida, is just a wonderful success. They, for the last several years running, have always had the best sales results. Which means they get a free trip. The whole team, complements of the company, is sent to Las Vegas for a week. As a reward for setting the best growth and sales for that year. And she also notices something a little bit odd, doesn't really in a sense lead to more than kind of a well, I wonder what that is. She notices that this sales team always is number one, but a little bit oddly they always get to 10% above the nationally set sales quota for that year, 10% above what they were expected. But oddly, they don't get to 11% or 12%. Our bigger concern though today, your concern, is what is it about this team that you might learn from how it manages its own work? The job design, the pay for performance, everything else that might be out there that leads some people to perform better than others. If you can find out the secret of their success, the Florida sales team, well, they'll take it to South Carolina and over to Louisiana. And thus, Brenda for career but maybe more importantly for the stockholders and owners and really the customers of the company. You have a lot of potential now there if you can unlock the secret of the human and social talent management that Jan Boyer take a look at her team there, has somehow brought to the table. At least, we know what the results are. We don't know the inner secret. So Brenda Cooper calls up Jan and says, hey, Jen, I'm your new boss. Nice to meet you by phone, hi, you guys down there in Florida, you're an amazing team because you always get way above nationally set quotas which go up every year. You always seem to do at least 10% better, in fact you're always right about 10% better. What's the secret of your success? So think what Brenda, this is you. I'd like you to be in Brenda's shoes now. What you're doing, you're going to look for some good ideas, call them, Better Human Management Practices that you might export once you can find out what they are. Unfortunately, Jan, who's got a phone next to her ear, eyes kind of rolling up, looking at the ceiling then he floor says this, Brenda, good to meet you by phone. To be honest down here in Florida, we get those sales figures by hard work. Well, everybody works hard that's told you nothing about a better human and social capital practice and so think about this. Many of you have done exactly this. If people won't tell you on the phone, maybe won't even tell you in person. You've gotta go down, in this case, spend time with them. Look them in the eye, talk with them for a couple obvious reasons they may not want to tell you what the secret is. And of course a lot of people have no idea what the secret is because they're just doing what they're doing without quite appreciating they've got a pretty clever set of steps for motivating the team and getting the job done. So Brenda Cooper just to make this a bit more physical gets on a hog, a big Harley Davidson motorcycle, she's got one, big jacket. Tears down to Florida, arrives and says to Jan, Jan, here I am. I'm [LAUGH] the new regional sales manager. Tell me face to face how you guys do it. Well, she gets the same brush off from Jan. And thus, she takes the next almost predictable, logical step of saying Jan, I'm going to be here for a couple weeks. Suppose I join you and your sales teams when they start making sales calls to wherever you sell the darn stuff. Jan says, fine, that's great, come on along, couple weeks later, Brenda, that's you, you found nothing when it comes to people practices, some idea of how to get the best behavior, the best results out of the people that you're responsible for, nothing that's tangible and helpful. And after really three weeks, the end of the third week, everybody's out one evening. Mary, at the very bottom of the chart there, turns to Brenda and says, Brenda, you're pretty hopeless down here. You've got to appreciate I know what you want to know. That hard work of course is part of it, but a huge part of it is the following. Now, before I give you what Mary says, I'd like you to think about how Mary's going to explain the extraordinary, the exceptional, the way above average performance this one of several state sales teams. Mary says this is Florida. I think who's in Florida demographically. We got lots of babies of course, we have lots of retried people and we have discovered it's amazing, that if we go into a retirement home, an assisted living headquarters, and say, look, we got great food for those whose dentures are not great. We can sell a whole lot not to babies but to the elderly. We've also discovered that the body builders like the kind of puree products that we create thus we're going to gyms. Homesick college students amazingly true but it is true sometimes by baby food I guess that's somehow takes them home, I'm not a quite certain what's the explanation. Dog owners, sometimes buy baby food for their pets. And it's also a fact that some gourmet restaurants five stars, they occasionally more buy our products adding something else that they list on the menu. That's always worried me about what restaurants might be serving. But the point that Mary has made is she and her team led by Jan have discovered five markets for baby food that in a sense logically don't go with the label, baby food. And Brenda has two conflicting thoughts. I'd like you to work through your own thoughts and conflict and resolve them. The first thought is fantastic, I've kind of stumbled over now in an innovative team. They've opened up new markets. This is great. I'm going to take their ideas. I might even send Jan to train teams throughout the region. I've got a best practice. I don't know how they become knowledgeable about these other markets, I'm going to find that out because after all in South Carolina, there maybe still other customers you wouldn't think of. But then Brenda Cooper second thought is this, hold on a second, Jan Boyar has known about these markets, and has never told my predecessor, and has not even told me. And by the way, who does Jan work for? Well, for me, and I work for a VP who ultimately works for the owners and the stockholders of the company. And thus, Jan Boyar, a little bit problematic because that person's been holding off, holding out. And now, coming back to that 10%, we always get to that team, always get's 10% above quota, but not more. Brenda says, well, why do you guys always stop at 10%? And the answer from Mary is that, well, look, if we get to 12%, next year the big VP for Marketing and Sales is going to require us to do that much better next year. We're going to work a lot harder and we don't get anything more for it. Right now if we get to 10% we know that's going to be best state in the region. We're going to get the free trip to Las Vegas, which by the way is fantastic, and thus we hold back. And so, Brenda Cooper, to add to the second half of the thinking here, is thinking, whoa, not only have I got a sales team whose mangers somehow are working against the company by holding back innovative information. They're actually holding back sales. So let me make that a more sharp edge question to you. If you're Brenda Cooper and think about the theories behind your thinking right now, would you keep Jan Boyer or would you fire her? The second half of the argument I made, well, maybe she ought to be pushed out kind of unethical behavior, the first staff is an amazing innovator, and you want to get out what that is. Just work on that for a couple of seconds here and ask yourself what are the underlying precepts or concepts that lead to one outcome or another? As you work that through, I'm going to offer up what I've seen in many many settings both classroom and in with organizations like your own, in a room, let's make it 50 people. Typically about a quarter or maybe a third say, Jan Boyar is of a temperament that won't work at this company. Unethical behavior, you have to send a message. She is gone. The other, wherever the remaining fraction might be, two-thirds, three-quarters, somewhere in there will say, no, there is something about this company, something about the design, the organizational architecture of this company, that led Jan to do what she's doing in a logical, almost predictable way. The problem is not Jan. The problem really is the company. Brenda Cooper comes down on the side as a modest majority of most will. On working with Jan on two premises that are very important for this module which is, number one, people bring in a host of ideas, they have an ethical compass. They know how to do their job, but once they are in our architecture, our system the way we reward, the way we promote separately has an independent impact on what they do. So we are what we are when they arrive but the architecture can encourage the right kind of action or discourage or misaligned it, in this case, and does change the organization, change the design, the architecture, we're going to change the people. Most people, a majority anyway, will come out with a ladder, not going to take a strong stand on this myself, but let's just take the implication of what we've said for the latter, and that is organizational design. The fourth part of of this course here is about how we can make for better arrangements so that people work hard, bring ideas forward, don't goldbrick, don't hold back and do the best for the company. With that being said, let's take one more look at this chart, and if you look at the education background of the sales people in Florida, here's what's striking, at least to my eye. I'd like you to reach your own conclusion on this, and that is Brenda Cooper has not come up through the best sales team. She actually is a horizontal, a lateral hire, she came in, she actually did an MBA degree in a business school at university brought in. She's actually never sold baby food in that particular sense. That's fine, we often hire people. We see people come in above us, it happens all the time, it happens to me many times. That being said, what's striking to me is we look at the education column, and then the left column just to the left of that on the years with the company, Jan Boyer has been there for 30 years and runs the best sales team in the company, actually in the whole not just the region. And yet she's never been promoted. Maybe she didn't want to go up, but on the face of it, it looks to me like we may be looking at a glass ceiling to use that well known phrase. People can look up, but because they are not a college graduate, they're not going up. Probably not gender in this case, but who knows, that may be a factor. Maybe there's other demographic inhibitors in this particular company. And thus, to turn this around, maybe the first statement about organizational architecture we ought to hang onto is this. That the way we put incentive systems in place, the first topic of our course. And then number two, the way we promote people up through the hierarchy. However, it's defined, can have profound independent impact on their actions. Their behavior. And thus organizational designs for better or for worse, can indeed make their actions on behalf of the company.
