Streamline Training & Documentation: Fundamental Tensions

Monday, March 05, 2007

Fundamental Tensions

A few months ago, I was interviewing several people at a renewable energy company to get the background information I needed to write a case study for their upcoming teamwork training. Each interviewee provided an important part of the picture, while also corroborating what I was hearing from colleagues, or offering an alternate point of view.

One senior manager provided an especially important insight. He talked about several "fundamental tensions" those making decisions at the company had to resolve.

One was the tension between pressing for increased output from their factory in order to increase current revenue vs. devoting time to process improvement in order to strengthen the company's ability to generate revenue in the future. Another was an unfortunate tension between some old-timers, who had been with the company since its early years when it was more research-oriented, and some newer employees, who had been hired, among other things, for their commitment to getting competitive products rapidly into the market.

I couldn't help but be reminded of this company's situation when I read an interview headlined "Unnecessary Tension" published in January in the Wall Street Journal.

The Journal's Carol Hymowitz spoke with Ken Favaro, co-chairman of Marakon Associates and co-author with Dominic Dodd, a senior associate at Marakon, of The Three Tensions: Winning the Struggle to Perform Without Compromise.

Only one of Favaro and Dodd's tensions tightly matches what was emphasized in my conversations at the renewable energy company, but the basic advice Favaro and Dodd offer still applies. That basic advice is to stay out of traps that ignore the interdependencies between apparently conflicting goals.

The three tensions — and associated traps — Favaro and Dodd discuss are:

Profitability vs. growth — "Top-line growth gives you the ability to achieve scale, reputation and credibility in the marketplace, which, in turn, draws in talent. All of this is necessary to generate healthy margins and, of course, healthy margins are necessary to generate the resources you need to keep the top line growing. At any point in time, top-line growth and bottom-line margins conflict with one another, but over time they are highly dependent on one another."

"A key trap is to grow revenue without growing customer benefit. If customers are getting a lot of benefit from choosing your product or service, they're willing to pay for that — and then you don't have to cut prices and sacrifice margins."

Short term vs. long term improvement — "Should you cut investments today in order to boost current earnings or increase investment in order to position the company for future earnings? Both are necessary and dependent on one another. Current earnings provide the ability to invest in future earnings. And you need future earnings in order to get the license to invest."

"The trap here is tying your level of investment to whether or not you've achieved an annual earnings target. That causes uneven investment, especially in cyclical businesses. ... What should drive investments the most are prospects for future returns."

Improving the parts of a company vs. the whole — "A company to some extent is only as good as its individual parts. But the individual parts can be good or bad depending on what they are gaining from being part of the whole."

"A common trap here is thinking that autonomy means you can't ever interfere or promote sharing of ideas and practices across units. You end up institutionalizing silos.

"On the other hand, if you centralize everything, you constrain business units to the point where they can no longer respond to their customers and competitors in an optimal way. ...

"The solution is for a CEO or a head of a business unit to recognize that he or she is both a coach and a conductor. Coaches know the strengths and weaknesses of their individual players and how to improve on these. Conductors get performance out of a group. And what enables a CEO to be both coach and conductor is the capacity to create shared values, common practices and a shared sense of identity."

Indeed, the renewable energy company was undertaking teamwork training not only to impart skills in such areas as dealing with different personal styles and running effective meetings, but also to reinforce management's day-to-day efforts to "create shared values, common practices and a shared sense of identity."

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Labels: Decision-making, Management practices, Systems thinking

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