I’ve written before about
the economic implications of living in a "tacit" industry (as opposed
to a "transactional" or a "transformational" one—McKinsey’s
coinage), but there’s more to say. A brief review of the bidding:
- transformational jobs are things like manufacturing,
mining, and agriculture—today one job in five, whereas a
century ago only one job in five was anything else; - transactional jobs are things like retail sales, accounting,
and banking and brokerage; - tacit jobs involve "searching, coordinating, and
monitoring activities required to exchange goods, services, and
information." For
instance? "Running supply chains, managing the
way customers experience products, reviving brands, and negotiating
acquisitions."
Now, in "Competitive Advantage through Better Interactions," McKinsey
returns
to the topic to address an issue that has vexed everyone
from hospital administrators to economics professors, ad agency presidents,
and managing partners.
The problem, of course, is that while we know how to juice the productivity
of transformational jobs—by and large, throw more capital investment
at them—and transactional jobs—by and large, refine business
processes through continuous learning—these strategies don’t
apply to tacit jobs: "[T]he productivity of marketing managers
and lawyers can’t be raised by standardizing their work or replacing
them with machines."
Worse, there’s wild fluctuation and variability in performance,
"a sure sign that things could be better." But systematizing,
say, the sales force for a high-tech company, is going to backfire. What
makes a good salesperson is, among other things, a superb understanding
of the product and the market, integrity, and a nuanced sensitivity
to how people make decisions, learned over time: None of it
susceptible to "process-ization."
Before we get too far ahead of ourselves, one caveat: The
industry you work in does not automatically peg you as falling into
any one of these three categories; virtually every industry requires
tacit work in some measure. So, e.g., McKinsey claims that
tacit workers are 70% of those in healthcare, 60% in securities firms,
and 30% even in utilities. Here are the overall numbers (%
of all jobs, 2004):
Back to variability: If you define performance
variability as the standard deviation of performance divided by the
mean level of performance, you get:
- 0.9 for companies with low levels of tacit activities;
- 5.5 in the middle; and
- 9.4 in sectors with high tacit activities.
These numbers have consequences. Measuring performance by
EBITDA per employee in $-thousands, you get this result: Among
freight companies (low), the range was from 7 to 90; among retail
banks (medium), from -23 to +332, and among investment banks (high),
from -82 to +805.
Now that you’re all ready to emulate that (unnamed) investment bank
at +805, how do you get there from here?
Let go.
Your job is not to superimpose "connectivity" from the top down,
but to set up and maintain an environment that encourages tacit interactions
to emerge and flourish. This means: Facilitating learning,
breaking down barriers, providing tools to foster collaboration,
and permitting decentralized, front-line innovation and decision
making. And it gets scarier still.
Not only do you need to tear out your micromanagement impulses root
and branch, you need to revolutionize your strategic decision making: Allow
"a portfolio of initiatives to emerge from internal and external
interactions." This reprises my
thoughts on the spontaneous
emergence of robust initiatives if people are allowed to "think out
loud" together.
In some ways (and McKinsey acknowledges this), professional service
firms are already better than corporate America at assembling ad
hoc teams to manage a project to completion, which then spontaneously
disassemble and reconfigure in new forms responding to new challenges. But
the question is not whether your law firm is better at this than
General Motors, it’s whether you’re better than your competitive
set.
Here’s the problem: "The kind of network buildign that tacit
workers must do to boost their effectiveness thrives in a culture
built on trust,… that rewards collaboration, dispenses group-based
incentives, and measures tacit work by its impact and the relationships
that those who engage in it forge." If you think that
describes few law firms today, you took the words out of my mouth.
Moreover, the type of relational and institutional learning that
occurs cannot be managed from the top-down. Indeed, McKinsey
even endorses blogs and wikis as having "created new, decentralized,
and dynamic approaches to the capture and dissemination of the knowledge
critical for tacit interations."
This approach may indeed "upend the greater part of what senior
management has learned over the past half century." But
when the facts and the environment change, do you change your approach? If
you do, and you’re lucky enough to have cautious and risk-averse
competition that does not, you are on your way.
