Video: Requisite Organization: Theory and Practice - Kraines - 2014

Speaker A Now, one of the things about Jerry and the reason we've invited him, we know he's a good citizen, we know he's been involved in many conferences. He was guest of honor in Buenos Aires. He has invited society affiliates to the Levinson Institute, where he does courses, and invited us to take the courses at extraordinary discounts so that we can learn and see his methods. He's written a book. He's written a chapter for our book. I think Jerry has responded to every request for him to contribute to the society that I can remember. So I want to express thanks to Jerry. And now the reason we have him here in the Sunday morning is because Jerry has put intellectual work in to give you a systems overview of Requisite design in less than an hour. So I guess with that, maybe I could introduce Jerry Crane.

Speaker B Thank you. The notion of Requisite organization, Elliot used to say, is that it's constantly evolving. I like to refer to Requisite organization as the physics and engineering of leadership systems. Elliot was the physicist, we're the engineers. And that's what we've been trying to do throughout the last quarter century, is to make it more approachable, more practical, and more pervasive. Because as much as we're all fascinated by it, very few people know about requisite organization. It's hard to compete with the flavor of the month. You can just look at Bloomsburg Business Week, and about every six months there's a new fad. It'll last for about twelve months, and it fades away. The problem with those fads is that they're based on a simplistic notion, a kernel of truth. But there's no depth to those notions. What Elliot Jacks created in a movement which we're all part of, was a focus on the simple principles, the first principles, and that everything else evolves from those first principles. One doesn't have to be a consultant to a big organization to apply those principles. If I weren't here, I'd be in this garden in our backyard, which our architect in the back of the room began to envision 15 years ago. And she knew it would take 15 years to implement the garden that's only halfway through. It's much lusher now. So when we began the process of figuring out how to teach Requisite organization 25 years ago and we started in Argentina to open an office, had ten consultants, and they looked at our teaching. They said, but you haven't told us up front what it's all about, and we're just learning about pieces. So they challenged me to try to come up with a way, if you will, let me just see if I can get this started, a way of explaining at a very high level. It's kind of like drinking from a fire hose. So what I intend to do in the next 50 minutes is not make you experts, but to fly over all of Requisite organization so you can begin to see the system as a whole. As I said here, I want you to understand that such an integrated system exists, to learn about the components and see how each supports each other, and then to realize that one can implement and have a sustainable system and in. Kudos to this conference, using Data, I first became aware of how frustrating and constraining using wall charts was when we won the contract to take 80,000 roles out of Ford and create vistion, an 80,000 person organization. And we had thousands of Excel spreadsheets to try to categorize systematize, collect data. And so I began a 15 year journey to figure out how we can take the processes that Elliot and others have developed and not replace human judgment, either on the part of the consultant or on the part of the client, but to focus the attention in a systematic way on how to understand what you have, how to model what you need, how to implement it and how to sustain it. So why requisite organization? In the first instance, we begin every one of our seminars with a simple question that we have people discuss at their tables what percentage of your time do you and your people have to spend working the system in order to get your real work done? And the answers are always somewhere between 30 and 80%. And so all of that represents not only a business opportunity cost but it represents a real source of frustration and demoralization for the people working in those systems. Well, what I would argue is that leaders like you and the ones you support need a system that will ensure that the full potential of the organization and each individual employee is released, harnessed and then directed towards creating value. So what are the causes of people having to work a system? So there are too many causes to list comprehensively. But organizations with structures, processes, systems that fail to align with their strategies, roles with unclear accountabilities processes which lack clarity as to who's accountable for what in relationship to whom. Accountability simply without authorities, people in roles lacking the required capabilities to do the work of the role effectively, managers who fail to add leadership value or hold their people accountable and HR systems that are not fully aligned with these requisite organization principles and with accountability leadership practices. So what does requisite organization provide? First of all, it provides a better understanding of the factors that are necessary to realize an enterprise's full potential value, the risks involved in achieving that and the organizational investments required. It provides a blueprint for systematically aligning every aspect of the organization with its strategy and its business objectives. It provides a scalable model for enhancing organizational capability based on sound science, clear principles, powerful technologies. At the end of the day, we can end up with a sustainable and accountable organizational alignment with world class talent and talent management and leadership development. It's a systematic means for supporting every employee in working towards realizing his or her full potential. And it's an adaptable model for the continuous improvement of process capability, efficiency and accountability. So we've had more and more interest expressed by asset management groups, by private equity groups because when they're looking at a property to acquire, they go through all of the economic and demographic and marketing metrics to essentially calculate or impute the potential value of the organization. They know what it costs and they figure, well we don't know what's inside the black box, we'll just hire a leader and have him or her figure it out. What they don't know is using requisite organization methodologies, they can understand what's in the back box, black box and they can ensure the delivery of that potential value with less money, less risk and less time. So what are the root causes of these management fads? I have to tell you, it took me about five years to really get a handle on the first principles that govern all of these management fads. Because if you think about what a managerial hierarchy is, it's an entity created by shareholders who have intentions and they have assets. And so they create an organization, a formal organization in which to employ people, but they elect a governing body to steward those assets, to hire a CEO and hold the CEO accountable for delivering on the value of those assets to achieve their intentions. Well, what are the main pistons that drive any managerial leadership system? Why can't we just automate everything? Because managerial systems require human judgment. They require the creative initiative of people to solve problems necessary in order to release the value. The problem is we're no longer in a cottage industry where individuals can both recognize the need, make the need, deliver and solve the need. That work gets done in our managerial systems by many people working in common across processes. And if we're going to extract the full value of our processes, we need not only creative initiative, we need process control. Well, for some reason the business school gurus and the management consultants have trouble reconciling two things at once. So if things have gotten too creative, too loosey goosey, they start tightening up on the process control. You can tell I spent a lot of time in Canada, I don't know how to say process anymore. And their bureaucracies become tighter and tighter. They become more bureausclerotic, if you will. And as the processes allow for less and less discretion, you've got a system under control that is becoming, if you will, a dinosaur. So when companies have become too rigid and they've become too bureaucratic, we say the problem is, with all of you anal retentive managers, we have to free our people from the shackles. And so we go move to adocracy, to self directed teams. And those of you I see enough gray hairs, you all went through that in the late eighty s and early ninety s. And I had predicted in the early 90s that the pendulum was going to swing back. I didn't know there was enough momentum for five more years to go all the way to empowerment, which created real anarchy. We had done a lot of work with Florida Power and Light for about 20 years. They had just won the Baldrich Award for their quality, and the company was going bankrupt. It was basically a two hierarchy system. They had a quantity hierarchy and a quality hierarchy. So they brought in a new CEO who was all about empowerment. And as we'd have executives come to our seminar, I'd say, how's it going? How's that empowerment thing going for you? And they'd say, you know, when the CEO comes around, we all run because he says, poof, you're empowered. And we know we haven't been empowered. We've been poofed. And then the pendulum swings. Whoops. Sorry. The pendulum swings in the other direction. Those of you who remember Chainsaw L Dunlap, after he sold Scott off to KC, he came down to Chicago and he killed Sunbeam in 18 months by telling everyone to check their brain at the door and just do what we tell you to do. The point I'm making here is the root of all of these management fads is that people have trouble reconciling an either or approach. They can't get through an either or approach. It's about control or it's about creativity. My point is, that's not the nature of things in society. The Greeks understood this 3000 years ago when they said the essence of liberty is the freedom of the individual citizen to act but within the collective social constraint. And I think that was Elliot's genius in understanding. In order to effectively release judgment, we have to define the boundaries so that people can spend all of their time exercising judgment within boundaries, not half of their time fighting the boundaries. So what we have to do is reconcile creative initiative with process control. And that gets to the point that Ken was making so eloquently that reckless organization is about a system of managerial leadership. Now, I'm going to ask certain people in the audience, you know who you are, to not speak up immediately when I say, do you recognize the parts? Anyone think they know what this is? First time I looked at it, I said, oh, that must be the United States. Maybe that's California. Maybe that's Texas. But if you don't recognize the parts, you can't visualize the whole. But when you recognize the components and you understand how each intends to articulate with the others, then you can understand the big picture. That's what I'm going to try to do in the remaining 45 minutes is help you understand the whole by flying over it pretty quickly. Now, those of you in the Dean Cinci, Michelle Malay, Carter course have seen this video, but for me, this is critical. We need a common language and that's what Elliot brought us.

Speaker C Hello? This is the Journal closed card. We are thinking we're thinking, what are you thinking about?

Speaker B So we need a language that helps us to describe the principles of each of the elements of a managerial leadership system. And I'm very visual in the way I approach understanding concepts. Words kind of leave me in the dust. So I think of it this way, that any work organization exists to fulfill a purpose. Strategy is how we intend to accomplish that purpose. And for me, strategy really sits on a three legged stool. The first leg is process. And I would suggest that most of us in the Ro community are not experts in process. You need to understand theory of constraints. You need to understand process architecture. But the problem is that even when you get good process, we don't know what the skeletal structure is to hang those muscles on to ensure that the process is not only capable and efficient, but it's accountable. So we need structure as well. Structure is the means by which authority to take and implement decisions is delegated down through the organization and the means whereby people who take those decisions are held accountable for good decisions. That's what structure is. And so, as we discussed in the brilliant course that Paul and Ron and Nancy and Herb put together, what we need to understand is that we have to reconcile iteratively. Do these processes support our structure? I'm sorry? Support our strategy? Will they have the capability to get it done efficiently? But upon what structure do we hang those processes? And often one modifies the other? The problem is we need to have a system that envelops the structures and processes because that explains how it all fits together and what are the constraints within which people must exercise judgment and discretion. If you have those three components, then you have the opportunity for genuine process control. The opportunity. It doesn't mean you've got process control. Because all of this is, if you will, foreplay or precursor to then figuring out what kinds of people with what kinds of capabilities do we need to put in each role to exercise the proper judgment and discretion within an accountability framework? So at that point we say, okay, now we have people in the roles. But funny thing, people are not like robots on computers. You can't just push a button and expect that they will do exactly what the role requires. We're complex, intentional creatures, believe me. My first career was psychiatry, and I know how complex people are. And so in order for people to be committed to do what their manager in the organization needs them to do, we need to create what Harry Levinson called a healthy psychological contract. And the basis of any healthy psychological contract is trust and reciprocity, trust and fairness. So we need to create a culture and a set of systems that support people in being successful now, for me, that's where the creative initiative comes from. But how does it get there? And for me, that's what leadership is. Leadership is necessary to translate purpose into strategy, translate strategy into process structure and systems, and then to translate the requirements of the roles in those systems into the people we need and to create the culture and the systems necessary to support people in being successful. Then they will exercise the appropriate creative initiative within the necessary process control as long as we have an accountability framework. And I think one of Elliott's first discoveries with Glacier mental was that managerial leadership systems are not participative democracies, they're accountability hierarchies. And he went a long way towards defining accountability. I believe one of my contributions to Ro development is I think we've taken a definition of accountability one step further, and it reads very simply that if you give your word, you are obligated to keep your word. No surprises. You can always try to renegotiate. But if I can't trust someone else in the organization when he or she gives me their word that they'll keep their word, we have no basis for trust, we have no basis for process control. But I don't want to give someone a bonus for keeping his word. He gets to keep his job for keeping his word. I want to give someone a bonus and rewards for earning his keep. And as Elliot pointed out, earning your keep is all about the effectiveness, the value you add to a role. And you can't measure that it has to be judged. So we now need a system which articulates what constitutes adding value in a particular role, of a particular economic range of value, and of a particular degree of complexity. We need a system that articulates what the standards are that the CEO sets for the organization and ensures that every manager accurately judges the demonstrated effectiveness of his or her subordinates. And all of the benefits that accrue from adding value have to be tied to that. It was when I realized that a culture of accountability can't be implemented until you have a transparent and accurate systemic approach to effectiveness. Appraisal that I realized we needed technology to ensure that consistency across the entire organization. So what then does a requisite leadership system contain? Market centric businesses that are designed at the appropriate level with the right functional alignment, the right managerial value adding levels that support capable, efficient, accountable processes resulting in roles with clear accountabilities aligned with the requisite authorities populated by capable, motivated talent who are accountable for keeping their word and earning their keep led by value adding accountability leaders supported by fully integrated comprehensive HR systems which in turn support meaningful accountability and a culture of trust and fairness and finally implemented with a comprehensive technology platform that's based fully on and requiring requisite principles and practices. For me, that's the goal. That's what we want to end up with. So how do we understand accountability? It took me about three years working with Elliot. I had the very good fortune to be invited by Dr. Levinson to take over the Levinson Institute at the exact moment that Elliot finished incredible work over a decade plus at CRA Mining and the US. Army. And so he was without major engagements for about four years, and I was able to hire him nearly full time to apprentice under him. So I got to see how he did it, not just how he thought about it and how he wrote about it. And the first thing I learned in working with him was a simple aphorism that accountability without authority is fantasy and stress. And you mention that in any managerial hierarchy, and people smile immediately or they frown because that's their life. So at the outset, we need to understand that managerial systems, leadership systems, are in fact, accountability hierarchies, which means that we have to really understand the nature of accountability in a managerial system. So for me, that's the first rule all managers must obey, that you don't hold people accountable for things for which they do not have the requisite resource authority. Otherwise you're managing for fantasy and you're never going to achieve process control. So the argument that you see in most organizations, is it about results or is it about effectiveness? And I would say 90% of the global organizations, they pay for results, not for effectiveness. Well, if we dig a little deeper, we have to hold people accountable for results and effectiveness. Results reflect how well people keep their word. Effectiveness reflects how well people earn their keep. Keeping one's word means accurately delivering on commitments made no surprises. And when we understand the limits within which we must operate the policies, the procedures, the systems that we are not forgiven for knowingly breaking the rules, earning one's keep means working at the level of effectiveness required by the role. It's adding value that is intended by a role of that size. It is essentially how I am earning my economic value. One of the things that we learned in putting together a transparent and internally consistent effectiveness appraisal process is when you have an employee who is in a role who is adding value, but none of that value is consistent with the role of that size. That person has not meeting the minimum requirements of the role. And it's very hard for managers to say people that are delivering value are not meeting the minimum requirements of the role. Well, that's the kind of rigor and clarity that's necessary. So the first is how we ensure process control. The second is how we innovate and create value. Well, you all know now, if you haven't before that Elliot said, if we're going to be clear about results, we have to be clear with our people about what constitutes the result, how much, how well by when, within what resource constraints. Well, when you have an organization with 1000 10,000, 10,0000 employees. How is the CEO going to know whether or not people are working within those expectations? How is a manager once removed going to know if you don't have the ability to document what those assignments are, what the constraints are, what the resources are, what the progress of completing those assignments is. If I'm going to evaluate someone's effectiveness every six months or once a year, I need to be able to look back over the year on all of the Qqtrs that I assigned to my subordinates and refresh my memory. How effectively did that person deliver on each and all of them within the constraints that he or she encountered? Well, what is earning your keep if you can't measure it? What do you do? Well, one of our famous Supreme Court justices once said, I can't define pornography, but I know it when I see it. And what we've learned is managers basically look at three things to identify their highly affected people. Who are the ones that don't hold back, don't play it safe, don't try to lowball me, but who are the ones that really step up to the plate and make ambitious commitments that they believe they could get done. They're not exactly sure if they will, but their commitment is to do it knowing they may need to come back and renegotiate. And they're the ones who are not just content to find a new way to be more effective and put it in their pocket for a rainy day. They come back to their manager and say, hey, I could do more. Is that what you want me to do? They're operating full steam ahead. And your go to people are also ones who understand the importance of working laterally. That it's not just their results, it's not just their outcome, but their work is a piece of a larger puzzle that their manager and their manager's manager is accountable for. So they understand that wherever possible, they need to adjust what and how they're doing to support people laterally to ensure the best overall outcome. And finally, they're the ones who quote think like owners in the sense that just because you've assigned a resource to me doesn't mean I have to spend it all, or just because this is the resource you've given me doesn't mean I have to accept it. In its current state, I'm constantly looking to make it better, faster, cheaper. Whether or not you've assigned that to me explicitly, this is what I mean by innovating and creating value. So what does accountability need to look like in a company if people are going to experience it as fair and trust inducing? Well, how about something as basic as the manager needs to be clear with people as to what they're accountable for and they need to make sure that the person registers it accurately. I would say this happens at best 30% of time in most organizations. And once they're clear about what needs to be done, within what constraints, they need to make sure that they're in agreement with the employee, the subordinate, that that person has the necessary thank you resource and resource authority with which to get it done. If I know that's the boundary condition, then I can say, okay, it's fair to hold me accountable. But now I want to know if the consequences are fair. So I need to know how you're going to measure outputs, and throughputs that's, keeping my word, no surprises, and how you're going to evaluate my effectiveness. Because I need to know what you're looking at as the standard and requirements for adding value. And then I need to have confidence that the consequences for meeting or not meeting my accountabilities are appropriate positive consequences for meeting my accountabilities and appropriate negative consequences for not meeting them. Because in the absence of any of those four prerequisites, this is what accountability means in most companies.

Speaker C When we asked reebok attendance Terry Ten, some people thought we were crazy. But I'm a firm believer in paradigm breaking, outside the box thinking. And since Terry's been with us, our productivity has gone up 46%. We're getting more from our employees than ever before. You know you need a cover sheet.

Speaker B On your TPS report, Richard.

Speaker C Thank you, baby. Hey, Danny. But what's really impressed me is how Terry's become part of the Felcher family. He fits right in here. To be honest, I wish Robot sent us tech.

Speaker B It I'm an employee, and I accept that I've been given the prerequisite conditions and that the assessment and the consequences are fair. But now I'm an employee who happens to be a manager. And this, I believe, is also only poorly understood in most managerial systems, that what differentiates a manager's role from that of an individual contributor's role is that managers are accountable for the outputs of others, for making sure those others are working at the required level of effectiveness. And we're continually improving their effectiveness. And the manager is accountable for ensuring that each and every one of his or her subordinates are working within limits, are adhering to policy. One of the fears, I heard it in our workshop the last couple of days, well, if we subordinate HR and Finance and It to our business unit heads, then they're going to go native. They're not going to respect the corporate policies. Well, I don't believe it should be the corporate head of finance, the corporate head of HR who holds a business unit controller, a business unit HR for holding the business unit head accountable. It should be the CEO who holds the division head accountable for ensuring all of his or her people adhere to policy. So we really have to understand the nature of accountability. Well, if I'm going to be a manager and accept that accountability, what authorities do I need? And once again, this is where Elliot's clear thinking I don't need to be able to choose whoever I want, but I need to make sure that my boss or HR doesn't twist my arm and say you've got a vacancy? Take Harry because no one else wants Harry. I have to be able to say no if I'm not offered qualified candidates and if I'm going to be accountable for their outputs, I either have to be the one to delegate those outputs or if that role is a service giving role, I have to define what kind of outputs are appropriate. If I'm accountable for their effectiveness, then I have to be the one who makes the final call on that effectiveness. But I recognize it has to be done through a gearing process where my manager is holding me accountable for taking into account the judgment of my peers when considering the effectiveness of my subordinate. And I have to defend anecdotally to all of them the basis of my judgment. But it's my call. And if I don't do that well, my manager will hold me accountable for not being an effective manager. Well, what authorities do you need? Well, if they've done a really good job, I need to have the authority to decide on merit award. If they're insubordinate, I need to have the authority to discipline them. And if they're not able to work at the required level of effectiveness, at the rate in which it is necessary for me to meet my accountabilities, I need to have the authority to initiate removal from role. So my point is, until we now have consequences, it's all a theory. And so managers need to exercise that authority. If people fail to keep their word with appropriate discipline, but you do it sensibly, you start with serious unequivocal things like safety, then harassment, and then it gets down to just honoring your commitments to other people. But even then, we find the culture of accountability only takes hold when people have gotten their first honest, transparently rendered effectiveness appraisal and that they learn for the first time, they're not all above average, they're not all from Lake Wobagon that in fact their manager has given them anecdotal information to defend the judgment of their less than adequate effectiveness. We develop a development plan. If they're not improving quickly enough, we put them on warning and if they don't meet the requirements, then we initiate removal from role. Well, if you're not going to give me a bonus for keeping my word and there's only a downside if I don't earn my keep, what's the upside? Well, it's pride. We significantly underestimate the motivational power for people that is based on their intrinsic desire to be successful, to master things, to set people up, to succeed. We also significantly, I think, underestimate the importance of recognizing people's value add. And we don't pay people fairly for the incremental value they add. And we don't give people who have moved up their capability ladder, we don't. Reward them with more challenging work. And finally, we don't make it clear that to be promoted it's not enough to have the potential you have to have earned the right to move up by adding exceptional value in your current role. So I would argue in this context accountability is not Terry Tate coming in and beating people up, but it is fundamental to civilization and human nature that keeping your word is the basis of trust. And without trust we have no society. And earning your keep is the basis of fairness. And without fairness we have very little motivation for people to work together and work with each other. Well, here's the hard part because when we have CEOs who call us in and say we want you to get our people to take accountability, I say I don't know how to do that. I do know. What you mean is you hope people will act responsibly. But people don't take accountability. They're given authority and held accountable. So we need to make it clear at the point of induction that in return for all of the current and future benefits working here, we have a fundamental inviolable request. And that is when you give your word, you keep your word. No surprises. And when we explain the value expected of your role, you earn your keep. And we make it clear to everyone who becomes a manager that they're accountable for ensuring that their subordinates keep their word and earn their keep. And if the manager is not doing it, their manager needs to hold the manager accountable for doing it. One of the most succinctly, articulate CEOs that we've worked with, who began working with Harry Levinson before the Levinson Institute began 50 years ago. Used to say after taking over and transforming a company if one of his executives wasn't getting his organization under control if I have to do your job for you, why do I need you? And that would get people's attention in a hurry. Okay, well, I've devoted a lot of time explaining about accountability because I think that has been under recognized as critical to the successful implementation of requisite organization. What most people talk about Ro is it's levels theory. And that's a piece of it, but it is only a piece of it. We do need to have the right levels. We do need to have the right functions aligned in the right way. We do need to align our cross functional processes clearly so accountabilities are aligned with authorities and we need to understand the importance of stewarding systems. So it's generally understood if we have too many or too few levels, the organization is going to be less effective. Well, when you're evaluating an organization that has 5000 employees, without technology it's impossible. It's just impossible to get your arms around it. So with technology we can quickly, as we go through a process of gearing complexity, in 2 seconds we can see where all of those nonrequisite conditions exist. It's also understood that if we have a large corporation that's serving multiple markets, how we structure each business unit is critical to the success of the overall business. What most companies do is they come up with a matrix and they keep PNL too high and they end up with a value robbing matrix. So think of the levels of complexity, like a ladder. If we have a ladder that we insert an extra rung between each existing rung, it's going to be harder to climb. If we take a ladder and remove every other rung, it's going to be harder to climb. Elliot discovered that there are, in nature, naturally occurring, discrete levels of complexity. So when we were asked by the CEO of Ford in 1993, does Ford need 14 levels like GM, 13 like we have, or eleven like Toyota has? I said, Get me an answer from the board and I'll tell you exactly. And the question was, what is the most distant concern in Ford's future that the board is holding your position accountable for addressing today? And we got back of the envelope. With the consolidation in the industry in the Western countries, with the massive growth in the east, there's no question that the automotive OEM industry is going to contract from 35 to three or four by the middle of the 21st century. This role is accountable for making sure we're one of those three or 460 year accountability. I said, you can have as many levels as you want, as long as it's eight. What Elliot then did is he began to look carefully at the kinds of decisions that are taken at each level. And that led him on his 35 year journey to figure out what is it about the way people think expressed through the way they talk that helps us understand why some people can make these decisions and others can't. So this is my Rosetta Stone. We can now look at time span, we can look at titles, we can look at the types of decisions, we can look at the purpose of work at each of those functions. We can take a look at the impact of work at each of those levels or groups of levels. We can now understand the difference between tactical, operational and strategic. And we now understand what is the type of thinking required to add that value at each level. So here we have let's see, which we have a 9000 person oil and gas equipment company. And we went in and in a week with the CEO and the executive team, we mapped out these roles. Well, what does that tell us? If we look at it this way, it tells us a lot, because the blue represents compression, the red represents vacuum. The green, it's just right. Mama bear, papa bear, baby bear. Or we can look at it in an.org chart. If you don't have technology, you're doomed. As I was for 15 years. PowerPoint, PowerPoint, PowerPoint, PowerPoint. What about functional alignment? Well, Elliot's research very clearly pointed to level five business units as the place where you need to align business functions. When you have a large corporation, you need to have the necessary mainstream functions, resourcing functions, control functions. So this is our basic paradigm? Well, without technology, without the ability to color where those functions exist, you're still kind of just flailing in the dark. So there's an old adage, if two or more people are accountable for the same thing, no one is accountable for it. The Romans used to say, a slave with three masters is really a free man. This is in Detroit. The GM salute. Don't blame me, blame my other boss. Well, that happens in our experience because we don't have a language and a methodology for answering the question who is accountable for what? And who is accountable for weighing in on that person's decisions? Once again, technology that allows you to sit down with the appropriate people, quickly map out who has the deciding authority, which are the people that have lateral accountabilities. And then it goes right into the role specification. You don't have to spend hours creating role specifications. So what is this notion that Elliot called tears and tars, which I found not helpful from a first principle base. Our belief is that in order to change the culture from our heroes would rather ask for forgiveness than permission. To one that says when people fail to adhere to defined boundaries, bad things will happen. We know that on the road. This is a scene I took off the Internet three days after I arrived in Singapore in a hotel about a block from here. Three in the morning. There were at a major intersection, the big road going here horizontally. There was a taxi here, a taxi to the right. This was a dash video dash cam. Watch what happens when the light turns green. My point is, if we're going to develop policies, if we're going to develop systems, do it right and don't let people thumb their nose at it. Okay, well, how can we help managers understand this more simply? I find the traffic light metaphor works beautifully. So what role has the direct accountability for? A step in a process. Namely, he has the authority and accountability to take and implement decisions and will be held accountable for the output and the effectiveness of those decisions. But will there be value added by establishing other roles with the indirect authority and accountability to affect those decisions? They're not accountable for the decisions. They are accountable for having an effect on those decisions. That's what the tiers are, in essence. So how do we do this? Well, we've come up with a new taxonomy that we have found much more useful. There are some roles that are not accountable for process. The only true process owner is the person at the top who has authority over all of the functions that are in that process. But we often establish roles as having accountability to support the process improvement work of the process owner. And that involves having the authority to dig around and identify opportunities, the authority to engage a group, to study and make a recommendation to the true process owner, and maybe to coordinate the implementation of that. That's a role that it's accountable for. Taking the initiative, service giving is the opposite. If it's requested of me, I have an accountability if it's appropriate to respond, but in the order in which it was given. But this is where the real meat is, is taking a look at the green lights. I'm accountable for knowing what you're doing, to give you advice that you need to take into account. But it's your decision whether or not to accept my advice, or I'm accountable for making sure that when you're working near the edges of the limits, to come in and try to persuade you to come up with an alternative. And if I can't, and I think it's still critical, I have the authority to delay what you do while I elevate it. And if you're already out of limits, I can turn on the red light. So once again, technology supports doing that, and all of that goes right into the roles. Finally, we need to understand system stewardship. And I would argue, just like those Russian metruska dolls. The way we need to think of stewardship is the CEO owns the corporate HR system, the corporate finance system, the corporate It system. The CFO does not own it. The CFO stewards it. The head of HR does not own it, the head of HR stewards it. So the CEO owns it, the corporate functional steward stewards it, but the CEO holds his immediate subordinate accountable for working within it, and then that can cascade all the way down. Stewardship constitutes all of those indirect accountabilities, plus some direct accountabilities for doing real work. Well, talent. People really are in love with talent. And how do we quickly, accurately, transparently assess the potential and effectiveness of the top 1200 people at Medicare and Medicaid Services in order to put together a succession plan for the top 80 roles over the next two, five and ten years? Can't do it without technology. What is a requisite HR talent pool development system with everything integrated? Well, it begins with role establishment, because that's how we get clear about whether the roles are necessary, what the roles are accountable for, what the requirements of the role are for. But we need to assess people's potential effectiveness and their demonstrated effectiveness if we're going to be able to select the right people, or if we're able to identify the holes we have in our pipelines to know how to strategically recruit the right people. And if we know the delta between people's potential and actual effectiveness, then we know how to develop people if we know their future potential, we know how to develop them for the future. We now have a better understanding for HR planning and we have the necessary ingredients for succession planning. And if we pay people for the exact value they add in a compensation system, that's the basis for trust and fairness and that's the basis for retention. But most corporations have seven different HR systems, none of which are based on first principles and certainly not on requisite principles. You need technology for that all to fit together so you're not just running all over the place. So what is our conception of a role? We define a role with four attributes once we specify its accountabilities. What is the level of work? What is the types of work functions, processes? What's the nature of work? Is it individual contributor work? Is it managerial work? Is it project management work, is it analytical work? And what are the working relationships? Because if you can answer that question and you've assessed your people properly, then we can find people who have the capacity to handle complexity required by the role. Could they work at this level? You can identify people who have the skilled knowledge necessary that they can do the work of this role. Well, using a computer metaphor, this is the speed of the processor, this is the software. And when we understand the nature of work of the role, we can ask does this or which of these individuals value work of that nature and therefore is committed to apply those capabilities? So could he do it? Can he do it? Will he do it, if you will? That's the energy source and what we've most recently added in the last two years. Does the person have an additional aptitude, unique for the work of this role, which I'm calling aptitudes or natural talents? Physical, musical, artistic, empathic? It's hardwired. It's not the speed of the processor. It's the way in which it's most efficiently expressed that, if you will, is the circuitry. And finally, does the person have the maturity and the balance in order to work well with others? Namely, does he come with any impedance or is he well grounded just to kill the metaphor? That's raw potential. And here we now have a nice dynamic. Do we want someone with extra potential? Maybe we're willing to settle for less skilled knowledge or just the right amount of potential, but more skilled knowledge. This allows more refined judgments. So how do we support the assessment of potential? At the risk of creating some controversy, I think it's not appropriate for consultants to come in and assess the potential of people in a company. It's the work of a manager to assess the potential of the people that work for the manager. And if the manager does not assess people's potential, how is that manager going to really understand the delta between potential effectiveness and actual effectiveness? So how do we support that technology. We've already assessed the role. We sit down with the mor and the managers and say, okay, in fact, does this person have a little headroom? If this person had all of the skilled knowledge, all of the motivation, we could get rid of rough edges. Not which role, but at what level could this person work? How much headroom does he or she have? Or is the person in over her head? And then with the software, we can say, well, how big a role could she handle in ten years? Because we've embedded the research into the software, we can say, this is what we would predict. Does that feel right or not? We're at the end of the career career runway, so we're able then, in real time, to say if this is current potential, this is what we would predict future potential to be either by career end or in five years or ten years, whatever you need. Well, now, once you do a map, you can have the computer calculate the delta, namely the headroom, which is what is the difference between the person's work ability and the work of the role? So with color coding, we say, we know this person is in a role down here and has tremendous underutilization. We know this person, because it's green, probably is in a role over here. This person is reasonably underutilized. This person is a good fit for the role this person is in over his head. We find that once executives go through this process, they zoom in and they start to understand the real source of the problems they've been experiencing for decades. This is my favorite example, and I'm not going to have time to end this, so let me just go through this. This was a client we finished working with a year ago, a 9000 person. When we began working with It oil and Gas equipment and technology company eight years ago, it was a sleepy little hundred year old equipment manufacturer, and they had just acquired a very competent board, and the level five CEO was getting ready to retire. And none of these folks appeared to the board. They didn't have the map at the time capable of doing the work for other reasons. So they immediately went out because they saw the danger here in their empty pipelines. They immediately went out and hired about seven or eight senior executives from Cameron, kind of a competitor. And they had then a number of level six capable people. One level seven capable person made him the CEO. And over the next seven years, they grew from a quarter of a billion dollars to $1.2 billion. But what the board hadn't realized until we got involved is those same folks brought in a number of people behind them who were in a higher mode. And when the board saw that, they said, wow, this is a new strategic opportunity to grow from five to six, which they've already done high level six. We can now begin to gear up for a level seven organization. Decided to make an approve major new debt acquisition to have more ability to create complex system solutions when GE swooped in and bought it for 50% overmarket value because they saw this as a company that had incredible capability within its pool of talent. I think I'm going to end just to honor the workshop, let me just tell you what I was going to cover effectiveness appraisal, because this, I believe, is the most poorly implemented aspect of Requisite organization. And I think we've cracked the code on that. To have a human judgment system that holds managers accountable for using the CEO's standards in evaluating and it cascades down from CEO and his team to then his subordinates acting as mor to their team. Cascades all the way down, not up. So the standard is held consistent as you go down. The organization I was then going to talk about, let me just move ahead about how we can use this information for five minutes. Thank you for systematically selecting capability. Namely, if we know the complexity of the work of the role, we can now identify who are all the people with capability at that level, but in a smaller role who do not bring any disruptive behaviors with them. Who have demonstrated that they apply their capabilities to roles with work of this nature, and only then who have the necessary minimal skilled knowledge for a role that's usually the first thing they look at. And oh, by the way, do they have some aptitudes that might make them uniquely suited? And also, by the way, after we cast that wide net, are some of these people critical to our succession plan? Do we want to use this role as an opportunity to move them along? And oh, by the way, we're trying to move some people from the US down to Brazil and Brazil into China. Who do we have there? And we have some very aggressive goals for increasing the diversity of our workforce. Once again, we let the manager then choose who he wants. So we have a systematic way then to use technology to put in all of your searches and say, who's the appropriate pool and then who do we want to select? When you're restructuring a company and you're now trying to fill ten level, mid level three roles, this is invaluable to get the optimal distribution. No science here. It's the result of 25 years of listening carefully to what managers say and what they mean when they talk about people who are more or less effective. What we've identified is that fully mastering the role that one is in and applying one's skills to get the results, reliably is not walking on water that's midpoint in a role. If I've only been in the role for two months and I'm still on training wheels, that's fine. But for most roles, if I haven't gotten to a point of full mastery within two or three years, that begins to be a problem. But there are a lot of people with ambition, with horsepower, who may not have mastered the role they're in, but by virtue of extraordinary initiative, have added incremental value. Those are the people who pull their roles up. And then there are people who, by virtue of extreme behaviors, are disruptive and they pull the organization down. So what we've been able to do very successfully with technology is get managers to gear their subordinates with the mor, keeping them honest about the basic role mastery, the vertical work, the lateral work, the managerial work about the extraordinary initiative in terms of intensity or integration or innovation and their disruptive work. And then, once again, with technology, we can now compare the effectiveness ratings of thousands of people in mid level three roles to ensure that the standards have remained consistent. The CEO or the head of a division can look down and see, have we maintained the standards of effectiveness with the integrity that we intend? For me, leadership has two components defining and setting direction. It's the Germanic root of the word lead, which is to show the path. And it's about leveraging the potential of all of your resources in order to achieve that direction. And I believe there's three broad categories of managerial leadership work engaging people's, commitment, aligning their thinking and therefore their decisions and their actions, and developing their capabilities. So what I've tried to do in an hour is to kind of zoom over the rooftop of requisite organization, help you see that we need to get the organization right, align with strategy so that it's capable, efficient and accountable, get the right people in the right roles. And then flowing from all of the assessments and everything else, we have much more effective coaching, mentoring, succession planning. And then what ties it all together is leadership and the leadership system. So thank you for going through a very rapid flow through two thirds of what I consider to be requisite organization.