Lesson 50: Organizational Structures for Knowledge-Driven Companies

If your critical path is driven by knowledge, then you might consider an organizational structure that leverages that knowledge for the critical path. The classic article “Leveraging Intellect,” by James Brian Quinn, Philip Anderson, and Sydney Finkelstein looked at organizations where knowledge provides key value to the customer, ranging from airline operations and brokerage firms to medical practices, software companies, education, and professional firms.

Lesson 49: Tying Organizational Structure to the Critical Path

Another powerful lever that affects the critical path is the organization’s structure; that is, how it organizes itself to create value for its customer. For too many organizations, management structures the company to meet their own psychological comfort. If the CEO is a control freak, she sets up a command-control structure with clean lines of hierarchical authority.

Lesson 48: How Organizational Culture Gets You Off the Critical Path

Now that we’ve covered rewards, let’s return to our earlier discussion of the levers that organizations have at their disposal to promote the critical path.

Another major lever is the organization's culture. Culture is made up of the values, norms, beliefs, and behaviors that define what the organization is about and how it gets things done.

Lesson 47: A Final Word about Rewards

Reward systems are complicated and getting them right is not easy. Over the years, I have heard several objections to my framework that I’d like to share with you.

First, not all jobs are easily translatable into value-added outcomes. Some have long lag times, like R&D and Strategy, before you will know if those jobs produce any value-added outcomes.

Lesson 46: Office Space: A Special Case of Non-Monetary Rewards and the Critical Path

I’m always amazed at how people covet and fight over offices, regardless of how much money they make.

Offices become a manifestation of the occupant’s self-worth and social status. Very seldom are office size, location, and furnishings tied to the critical path. Most C-Suites are hidden away in citadels far away from the critical path.

Lesson 45: Non-Monetary Rewards and the Critical Path: Social and Psychological Rewards

Most experts on reward systems will tell you that money isn’t everything. In fact, it isn’t even the first thing. In my work with companies and their employees, I’ve found that the top 3 motivators are…

Lesson 44: Tying Economic Rewards Together

Let's now tie these economic rewards together within the framework.

Let's begin by comparing two examples as we did in Lesson 36, but this time with different splits. Consider Ben, our most conservative, risk-averse employee with the 90 - 10 - 0 profile and our value-added, outcomes-oriented employee, Arriya, with the 20 - 30 - 50 split.

Lesson 43: Applying the Critical Path Rewards Framework: Organizational Level

inally, we can look at organizational-level value-added outcomes rewards on the framework on page 139 in Chapter 37. All the employees who helped create the overall bottom-line results of the company should be given rewards that increase in value as your organization increases in value. This would typically be stock ownership.

Lesson 42: Applying the Critical Path Rewards Framework: Team Level

Returning to the framework on page 139 in Chapter 37, at the team level of value-added outcomes, companies can use gainsharing to reward teams that produce the gains. Bob Doyle, who pioneered the concept of gainsharing and wrote the seminal book on the topic, saw the benefit of the organization sharing bottom-line results with the employees who created them.

Lesson 41: Applying the Critical Path Rewards Framework: Individual Level

This approach to offering employees rewards also gives us a way to re-think how to structure an individual employee’s monetary compensation.

Looking at the framework on page 139 in Chapter 37, at the individual level, for example, a company can give a share of product royalties to those employees who create value-added outcomes.

Lesson 40: Applying the Critical Path Rewards Framework: The Baseline

Companies often ask how much they should give to their value-producing stars.

Let’s look ahead to the definition of a job (which we will cover in much greater detail in Part 6 of the book). A job is an opportunity to create more present or future value than it costs to employ you.

Lesson 39: Economic Rewards by Type of Performance

Neymar, the Brazilian born soccer star, is the most expensive player in soccer’s history with a salary reported at $38 Million Euros. In 2017, his pro team, Paris Saint-Germain, paid a $220 million transfer fee to obtain him. The problem is that he has under-performed since his arrival and sits the bench much of the time.

Lesson 38: How Weighting Rewards Affects the Critical Path

As a counterexample to the 90-10-0 weighting preferred by Grace, we can compare two other employees below. Rian is a novice TV writer who doesn’t know if his show will get picked up by a broadcast network, let alone be successful.

Lesson 37: Weighting Rewards for Desired Performance

Weighting rewards is a balancing act. Employers focused on the critical path will want to tie more rewards to value-added outcomes and less to effort inputs and throughputs. The company’s survival and success are totally dependent on those value-added outcomes.

Lesson 36: What Most Pay Systems Really Reward

Most companies pay most people for individual effort. If you show up on time, dress and act appropriately, and then do what you are assigned to do, you are very likely to get your weekly paycheck. As we saw earlier, once a year or so, you will be evaluated against a PE system that measures and rewards competencies, attitudes, and behaviors—not results and outcomes.

Lesson 35: Individual, Team, and Organizational Critical Path Rewards

When designing rewards, it’s also important to look at the level of the behavior that you want to influence and what any worker can contribute at that level. People most often work at the individual level, doing their work within the appropriate schedule, budget, and work specifications.

Lesson 34: A Critical Path Rewards Framework

When I work with companies, I suggest that they compare their reward systems to a critical path–linked framework. In keeping with the exhortations of Steve Kerr, author of “On the Folly of Rewarding A, while Hoping for B,” rewards need to: 1) incentivize exactly the behavior that you want; and 2) be correctly appropriate for that behavior.

Lesson 33: Tying Rewards to the Critical Path

A major lever to get people on the critical path is the reward system. But companies often waste the power of this lever by misaligning their rewards, which pushes people off the critical path.

Lesson 32: A Word for Those Who Enable the Critical Path

Some employees don’t make critical path contributions directly. Instead, they enable others to make better contributions than they would without this person’s influence. For example, they are such good motivators that the critical path people with whom they interact turn out even better work. According to them, their “intangible” inputs and throughputs improve other people’s outputs and outcomes.

Lesson 31: Getting Performance Evaluation Right

I once consulted to a very large oil company. It determined the exploration department’s success by counting how many wells they drilled each year. After 5 years, they had more new wells operating than any of their competitors. Success!