The Business of Business is People
Thesis: A talk given by Ian Davis, the global head of McKinsey & Company, suggests that understanding people is increasingly a critical facet of business success, giving psychology and cognitive science a more prominent role in global organizations.
This past Wednesday, Ian Davis, the head of McKinsey & Company (one of the most distinguished global consultancies, with 84 offices in 45 countries), spoke to students at the Stanford Business School. Mr. Davis was an impressive speaker. From a family of five generations at Oxford, he graduated with degrees in Economics, Political Science, and Philosophy. In his talk he demonstrated knowledge and understanding of everything ranging from history to economy to technology and how they define the concerns of the modern day corporation. Mr. Davis's aim was to communicate what he viewed as the most important issues facing businesses today as distilled from his conversations with CEOs of major corporations around the globe. Included among these themes were information technology, Asia, strategy, and understanding the relationship between growth and risk. However, the theme he stressed most was the importance of people: "If the 1980's were about strategy, and the 1990's were about information technology, then the next decade will be about people." The question is, what exactly did Mr. Davis mean by "people?"
After my brief stint in the working world, I've often told people that the key lesson of my experience was that business is people. It's not bricks and mortar, trucks, computers, money, or any of the things that immediately come to mind. All of these things are ultimately the tools of the people, and the most important factor in the overall productivity of an enterprise is the people and how they work together. How do you organize people? How do you motivate them? How do people think and work? When are they irrational versus rational? What makes them tick?
When explaining what he meant, Mr. Davis talked about how the usual suspects of a business plan can just no longer cut it. Product offering, customer base, market, implementation, supply chain, etc... Twenty years ago these would have been enough, but now, we're too good at what we do. An edge is needed. And Mr. Davis believes that edge is understanding people to maximize their productivity. He's so confident this belief that he's launching an initiative at McKinsey, one of the most diverse companies on Earth, to make his employees even more diverse. But he didn't mean "diverse" in the traditional sense (ethnicity, nationality, etc...). He wants to diversify away from the usual smart, privileged business type and to attract people with a range of personalities from different social clusters. One of the examples he gave was their recent hire of a priest. He wants more liberal arts majors and people generally from all walks of life, believing that this more diverse personality base will enable McKinsey to focus less on process solutions and more on solutions to the nebulous puzzle of organization behavior.
The way people are organized can make all the difference in an organization. For example, studies of Enron have posited that the extraordinarily competitive atmosphere, driven by a "rank-and-yank" system that engendered fear in employees, created a situation in which loyalty was favored over dissent. The result was an irrational escalation of commitment to ludicrous accounting schemes that eventually destroyed the wealth of millions of people. In a less hierarchical organization where dissent was encouraged, the Enron catastrophe might have been avoided. Studies also show that organizations that have more "cross-border" interaction tend to be more successful because of superior idea generation and innovation. By "cross-border" I mean the people in marketing talk to the people in engineering, and the people in management talk to the folks in the call center, rather than clinging to their group or division. In other words, we're more effective if constantly learning from each other; this is why top universities aim to have as diverse an intellectual population as possible. Achieving this structure in businesses is so valuable that certain companies use software to analyze people's email programs to understand the inter-company network (who works with who and who's friends with who), to continually re-seat and reorganize their employees in an increasingly optimal manner.
Similarly, teams are productive in different ways depending on how they're organized. Diverse teams of peers are better for planning, and hierarchical teams are better for execution. Additionally, to understand consumer activity and improve marketing, cognitive science and brain scan technology is being used to study consumer "response" to different brands or marketing tactics. Why go with the marketing firms personal favorite of ten logos when you can do brain surveys to choose the one that produces the scientifically most "pleasing" result to consumers? Studies have been done on just about every aspect of psychology and organizational behavior you could imagine, and bringing these lessons to the modern-day corporation to achieve better results through motivating employees and optimizing their interactions is quickly becoming a priority among businesses.
So, how the heck am I going to tie this back to nanotechnology? First, this theme harkens back to some of the posts on my blog about decentralized artificial intelligence and phenomenon of sync. Organization is everything when trying to induce a result from a set of discreet elements working in concert. It's capitalism versus centrally planned economies, assembly lines versus artisans, democracy versus dictatorship, military hierarchy versus partnership, the concert of bees and ants versus singular dominance in wolf packs, the architecture of the modern-day PC versus the brain. The theme of organization is everything because its the difference between chaos, mediocrity, and excellence in building something greater than the sum of parts. Just check the back of any quarter to see this theme poignantly articulated as it applies to government: " E Pluribus Unam;" From Many, One.
But the most important thing I'm stressing is the importance of factors other than a company's portfolio technology in determining its ultimate success. When choosing among prospective investments, it's important to mindful of how well management understands their employees and consumers. How much business experience does the CEO have? Will the management team work well together? Are they motivated and capable of motivating their employees? These are tough questions. Answering them requires some digging, but they're essential questions nonetheless. Over thirty years ago, Milton Friedman once commented that "the business of business is business." These days, and in the spirit of Mr. Davis's talk, this adage might be more aptly phrased, "The business of business is people."
This past Wednesday, Ian Davis, the head of McKinsey & Company (one of the most distinguished global consultancies, with 84 offices in 45 countries), spoke to students at the Stanford Business School. Mr. Davis was an impressive speaker. From a family of five generations at Oxford, he graduated with degrees in Economics, Political Science, and Philosophy. In his talk he demonstrated knowledge and understanding of everything ranging from history to economy to technology and how they define the concerns of the modern day corporation. Mr. Davis's aim was to communicate what he viewed as the most important issues facing businesses today as distilled from his conversations with CEOs of major corporations around the globe. Included among these themes were information technology, Asia, strategy, and understanding the relationship between growth and risk. However, the theme he stressed most was the importance of people: "If the 1980's were about strategy, and the 1990's were about information technology, then the next decade will be about people." The question is, what exactly did Mr. Davis mean by "people?"
After my brief stint in the working world, I've often told people that the key lesson of my experience was that business is people. It's not bricks and mortar, trucks, computers, money, or any of the things that immediately come to mind. All of these things are ultimately the tools of the people, and the most important factor in the overall productivity of an enterprise is the people and how they work together. How do you organize people? How do you motivate them? How do people think and work? When are they irrational versus rational? What makes them tick?
When explaining what he meant, Mr. Davis talked about how the usual suspects of a business plan can just no longer cut it. Product offering, customer base, market, implementation, supply chain, etc... Twenty years ago these would have been enough, but now, we're too good at what we do. An edge is needed. And Mr. Davis believes that edge is understanding people to maximize their productivity. He's so confident this belief that he's launching an initiative at McKinsey, one of the most diverse companies on Earth, to make his employees even more diverse. But he didn't mean "diverse" in the traditional sense (ethnicity, nationality, etc...). He wants to diversify away from the usual smart, privileged business type and to attract people with a range of personalities from different social clusters. One of the examples he gave was their recent hire of a priest. He wants more liberal arts majors and people generally from all walks of life, believing that this more diverse personality base will enable McKinsey to focus less on process solutions and more on solutions to the nebulous puzzle of organization behavior.
The way people are organized can make all the difference in an organization. For example, studies of Enron have posited that the extraordinarily competitive atmosphere, driven by a "rank-and-yank" system that engendered fear in employees, created a situation in which loyalty was favored over dissent. The result was an irrational escalation of commitment to ludicrous accounting schemes that eventually destroyed the wealth of millions of people. In a less hierarchical organization where dissent was encouraged, the Enron catastrophe might have been avoided. Studies also show that organizations that have more "cross-border" interaction tend to be more successful because of superior idea generation and innovation. By "cross-border" I mean the people in marketing talk to the people in engineering, and the people in management talk to the folks in the call center, rather than clinging to their group or division. In other words, we're more effective if constantly learning from each other; this is why top universities aim to have as diverse an intellectual population as possible. Achieving this structure in businesses is so valuable that certain companies use software to analyze people's email programs to understand the inter-company network (who works with who and who's friends with who), to continually re-seat and reorganize their employees in an increasingly optimal manner.
Similarly, teams are productive in different ways depending on how they're organized. Diverse teams of peers are better for planning, and hierarchical teams are better for execution. Additionally, to understand consumer activity and improve marketing, cognitive science and brain scan technology is being used to study consumer "response" to different brands or marketing tactics. Why go with the marketing firms personal favorite of ten logos when you can do brain surveys to choose the one that produces the scientifically most "pleasing" result to consumers? Studies have been done on just about every aspect of psychology and organizational behavior you could imagine, and bringing these lessons to the modern-day corporation to achieve better results through motivating employees and optimizing their interactions is quickly becoming a priority among businesses.
So, how the heck am I going to tie this back to nanotechnology? First, this theme harkens back to some of the posts on my blog about decentralized artificial intelligence and phenomenon of sync. Organization is everything when trying to induce a result from a set of discreet elements working in concert. It's capitalism versus centrally planned economies, assembly lines versus artisans, democracy versus dictatorship, military hierarchy versus partnership, the concert of bees and ants versus singular dominance in wolf packs, the architecture of the modern-day PC versus the brain. The theme of organization is everything because its the difference between chaos, mediocrity, and excellence in building something greater than the sum of parts. Just check the back of any quarter to see this theme poignantly articulated as it applies to government: " E Pluribus Unam;" From Many, One.
But the most important thing I'm stressing is the importance of factors other than a company's portfolio technology in determining its ultimate success. When choosing among prospective investments, it's important to mindful of how well management understands their employees and consumers. How much business experience does the CEO have? Will the management team work well together? Are they motivated and capable of motivating their employees? These are tough questions. Answering them requires some digging, but they're essential questions nonetheless. Over thirty years ago, Milton Friedman once commented that "the business of business is business." These days, and in the spirit of Mr. Davis's talk, this adage might be more aptly phrased, "The business of business is people."
posted by Clayton at 12:22 AM
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