For organizations of every size and type, a well-articulated vision helps everyone involve understand and embrace the organization's purpose and direction.
A vision is not a grand plan; rather, it provides direction and general guidance about the opportunities the organization will and will not pursue. A good vision helps create the conditions where a bottom-up approach can flourish - where all members understand how to contribute and cooperate to create virtuous cycles of mutual benefit.
Consider:
Read the Organization Vision Statement. What two or three points stand out to you?
What is the vision for your team? Regardless of whether your team has a written vision statement or not, you should be clear about how your team advances your site, business unit, or company vision.
Resource:
PBM Organization Vision
Bottom-Up vs Top-Down
What is Bottom-Up vs. Top-Down?
This principle helps us understand the fundamental approach we want to take (bottom-up) by contrasting it with what we don’t want (top-down).
A bottom-up approach respects the inherent worth of each person and unleashes creativity, initiative and talents, resulting in beneficial outcomes beyond what anyone could have planned or predicted.
A top-down approach assumes those in control know what’s best for everyone else. Those at the top typically seek power, rely on one-size-fits-all approaches and use detailed rules and coercion that stifle others. No matter how well-intentioned, a top-down approach only benefits those at the top.
Why is This Important?
Only in a bottom-up society or organization can individuals more fully apply their abilities and knowledge to better their lives and the lives of others. Taking a bottom-up approach to all we do is essential for respecting individuals, applying our principles, and empowering individuals throughout the organization to use their gifts and knowledge to tackle problems and pursue opportunities.
Principle in Brief: Bottom-Up vs Top-Down
For all the millennia of human existence, life was miserable. Nearly everyone was born into poverty, lived in poverty and died young. As recently as 200 years ago, 90% of the world’s population lived in extreme poverty. But then something remarkable began to happen: life started to get better and better for more and more people. The flat line representing average well-being became a hockey stick, suddenly and sharply improving – and it has not stopped. Today, less than 10 percent of people live in extreme poverty, even though the world’s population is now almost eight times what it was 200 years ago.
What happened? In short, certain societies haltingly but increasingly began to move from top-down – where a few people controlled the many – to bottom-up, where more and more people enjoyed greater opportunity to live as they saw fit, although it has been an uneven process that remains incomplete. They were more fully able to apply their abilities and knowledge to better their lives and the lives of others.
A top-down approach assumes those in control know what’s best for everyone else. Those at the top typically seek power, rely on one-size-fits-all approaches and use detailed rules and coercion that stifle others. No matter how well-intentioned, a top-down approach only benefits those at the top.
A bottom-up approach respects the inherent worth of each person and unleashes creativity, initiative and talents, resulting in beneficial outcomes beyond what anyone could have planned or predicted. People and society benefit when behavior is mostly governed by general principles rather than detailed rules, freeing individuals to use their gifts and knowledge to tackle problems and pursue opportunities.
In an organization, a bottom-up approach does not mean decentralizing all decisions or equally distributing authorities. Leaders play a vital role in making decisions for which they have the comparative advantage. For example, a facility manager is most likely in the best position to make decisions that affect the whole facility. With a bottom-up approach, the manager seeks and uses the input and challenge of those who have relevant knowledge. However, with a top-down approach, managers simply impose their decisions, which undermines the culture and leads to worse results. They are guilty of “the fatal conceit.”
Bottom-up does not mean employees are free to do whatever they feel like. We strive to create the conditions where employees are motivated to do what is beneficial for organization and themselves. The responsibility of every supervisor is to enable their employees to understand how, and be motivated, to maximize value in harmony with our principle-based framework. This bottom-up approach benefits everyone – employees, organization, and society.
Examples
The following workplace examples contrast the mindset and behaviors of individuals when they take a bottom-up approach compared to a top-down approach.
Making Decisions
Bottom-Up Approach: Max’s team has three different alternatives for how to make a web-based application more user-friendly. Max gathers a focus group of customers to get their reactions and feedback. He also listens to his team’s recommendation and asks them questions to understand their reasoning. Max realizes this decision will affect other teams, so he works with those leaders to make sure the final decision leads to the best overall outcome.
Top-Down Approach: Max’s team has three different alternatives for how to make a web-based application more user-friendly. Because he became team lead after a decade of doing product development, Max believes he understands what customers value. Since there’s no clear "winning” alternative based on net present value or other financial calculations, he chooses the alternative he prefers.
Working with Others
Bottom-Up Approach: When Bree is asked to give her perspective about her teammate, Donny, leading a large project, she gives her honest opinion about his skills and where he might need help. She sees Donny’s potential and is excited to help him. Bree embraces this as a chance to develop her coaching and mentoring skills.
Top-Down Approach: When Bree is asked to give her perspective about her teammate, Donny, leading a large project, she downplays Donny’s gifts and potential. Bree views Donny as a threat and doesn’t want to do anything that might take away from her own status.
Leading Others
Bottom-Up Approach: While Sara’s team has developed various work processes and procedures, she consistently focuses her team on results and uses principles to describe what good looks like. She coaches her team members to be more contribution motivated and encourages them to continually find ways to improve their processes and identify work that should be stopped.
Top-Down Approach: Sara spends most of her energy developing and enforcing the processes and procedures she created for her team. She views herself as the expert and her team as the “workers” who just need to do what she tells them. The team has created workarounds when the processes don’t do well because it’s easier than dealing with Sara to get something changed. They know Sara doesn’t view them as worthy of contributing to team-level ideas or decisions.
Dealing with Change
Bottom-Up Approach: Juan works at a site that is going through a lot of changes. The plant leadership team recently held a townhall meeting to talk about changing market conditions, the company’s updated vision and the site’s priorities. After the meeting, Juan talks to his supervisor and asks questions to better understand the reason for the changes. He then offers specific ideas for what their team could do differently to improve results.
Top-Down Approach: Juan works at a site that is going through a lot of changes. The plant leadership team recently held a townhall meeting to talk about changing market conditions, the company’s updated vision and the site’s priorities. After the meeting, Juan says to his supervisor, “They spend so much time explaining why this place is always changing. Just tell me what to do and I'll do it.”
Leaders can develop an incredible, transformative vision, but the organization won't realize the benefits of that vision if it's not a SHARED VISION!
Your team has a shared vision when every team member understands what the organization is trying to achieve, knows how they can best contribute, and is motivated to do it. A shared vision help you "row the team boat" in the same direction.
While there won't always be smooth sailing, here are few signs that your team has a shared vision:
1) Everyone understands and is aligned with what team success looks like.
2) Everyone on the team knows who your customers (and potential customers) are.
3) There is a high degree of cooperation and collaboration toward common objectives.
4) You recognize the partnerships your team needs to be successful.
5) Your team knows how mutual benefit improves outcomes for all parties involved, fostering enduring partnerships.
6) Team members engage in respectful challenge to innovate and improve results.
Consider:
Discuss with your supervisor or your entire team: Who does your team create value for? How does your team create value? Is there a common, shared understanding? If not, who can help your team reach a shared vision?
Try describing your vision, in simple terms, to a friend or family member. What does this experience reveal about your understanding of the vision?
Resources:
Motivation
Principles in Brief: Motivation
Motivation (from the Latin word meaning “to move”) is what prompts us to act. It is not a feeling, emotion or what makes a person happy. A person’s motivation comes from a combination of what is within them (intrinsic) and their environment (extrinsic). Thus, to have an organization of contribution-motivated people, we address both factors.
We start by selecting contribution-motivated employees who define success as making a positive difference for others and have a strong desire to do so (intrinsic). We then strive to select supervisors who will create an environment (extrinsic) that motivates employees to maximize their contributions to organization’s long-term success. We reward results rather than activity; otherwise, we unintentionally motivate employees to do work that is wasteful.
We also recognize that for individuals to act, they not only need to be dissatisfied with the status quo, they need to have a vision of a better state and a belief it can be achieved.Just as profit and loss can help satisfy these three conditions for entrepreneurs, roles, feedback and rewards can help satisfy these conditions for employees.
Rather than using rigid, formulaic pay structures that fail to consider what an individual has contributed (whether positive or negative), we attempt to reward employees according to the long-term value they create. This includes contributions to culture, current results and building capabilities that we believe will generate results. When employees understand how they earned and can increase their compensation, they become more fully motivated to increase their contributions.
Effective supervisors are motivated to help their employees self-actualize, rather than control and stifle them. They prioritize building trusted relationships and learning how to motivate each employee based on what is important to them, given their subjective value – such as pay, doing meaningful work they are good at and care about, having some control over their activities, and the opportunity to be creative and develop.
Principles in Brief: Alignment of Incentives
Organization’s future depends on providing incentives that motivate our core constituencies to help maximize the company’s long-term success.
This starts with our employees. We seek to align their interests with what will be beneficial for them and organization in harmony with our principle-based framework. This alignment provides roles, work, authorities and rewards that motivate them to make the maximum contributions to their organization and ultimately to organization’s long-term success. This includes contributions in building capabilities that have generated or we believe will generate results – including past contributions that haven’t been fully rewarded. And we don’t penalize well-designed experiments that fail, because they create knowledge leading to better decisions.
We structure incentives to align the interests of employees with the interests of the company, our customers and society. As psychologist Abraham Maslow taught, “This includes the need for meaningful work, for responsibility, for creativeness, for being fair and just, for doing what is worthwhile, and for [doing] it well.” Employees also need to feel they are working for a good company and are benefiting others as well as themselves.
Additional key aspects include:
Using incentives to guide employees toward activities and areas where their abilities and interests will enable them to create the most value
Structuring incentives to attract, motivate and retain principled entrepreneurs, without putting a limit on compensation
Basing compensation on overall contribution to organization’s long-term success, not just on a specific set of accomplishments
Rewarding contributions, such as knowledge sharing, that benefit other employees and parts of organization
Aligning incentives starts with eliminating perverse incentives – those that cause employees to sub-optimize their ability to create value or even to destroy value.
Examples of perverse incentives are:
One-size-fits-all point systems or pay grades, detailed formulas, profit sharing and cost-of-living adjustments, regardless of an individual’s contribution
Automatic raises and pay based on title, credentials, seniority, experience or number of reports
Rewarding short-term earnings or the performance of the employee’s unit regardless of the effect on organization’s long-term success
Financial compensation for hitting targets that aren’t tied to value creation, such as meeting budgets or exceeding sales goals
It is also important to align incentives for the company’s other core constituencies, such as customers, suppliers, shareholders, co-investors, communities and governments. Doing so by understanding their subjective values greatly enhances organization’s long-term success.
Some examples:
By consistently practicing stewardship and compliance – especially regarding safety and the environment – providing good jobs and supporting effective non-profits, we make our communities better and they will want us to succeed
Persuading retailers to increase our premium shelf space by demonstrating that our products will improve store traffic
Motivating our suppliers to create the most value for us by empowering and rewarding them appropriately
Designing the compensation for advisors, agents or consultants to share in our gain so they are motivated to achieve better outcomes
By understanding what governments value, acting with integrity and keeping commitments, we improve the chance they will allow us to earn good profit by creating value in society
Principles in Brief: Requirements for Human Action
For organization to succeed long term we must enable employees to understand what we are trying to achieve and empower them to achieve it in a principled manner. Bringing about this beneficial result requires an understanding of what causes people to act.
In his book, “Human Action,” noted economist and philosopher Ludwig von Mises provides that understanding. He posits that three requirements must be met for individuals to take action:
1) unease or dissatisfaction with the present state of affairs,
2) a vision of a better state, and
3) a belief that they can reach the better state.
For example, we mow our lawns only when we are dissatisfied with their present condition, believe they will look better and know how to mow them. Customers switch to organization when they become dissatisfied with their current supplier, believe we will serve them better and are able to switch.
Organizations that fail to meet these three requirements develop a culture that stifles progress. In contrast, successful organizations: 1) create dissatisfaction with the status quo, 2) provide a vision of long-term success and fulfillment, and 3) empower employees to contribute by building a culture of Principled Entrepreneurship™.
We strive to create dissatisfaction with the current state by helping employees recognize that no matter how well they and the company are doing, unless they continually improve and transform themselves, creative destruction will ultimately cause us to become obsolete.
We help employees develop a vision of a better state, first by understanding their organization’s and organization’s vision and our principle-based framework, then by demonstrating that they will be better off if they more fully apply this framework to advance these visions.
The most difficult requirement is helping employees believe they have a path to a better state. For many companies, satisfying this requirement becomes impossible because they have developed a bureaucracy-based framework and culture that stifles employees’ ability to fully contribute.
We learned of one such situation directly from an officer at a major company. He said it was hopeless. They were stymied by bureaucracy, red tape and resistance to change. When asked what he was doing about it, he responded: “After a while you just paint your ass white and run with the antelope!” He and most others had given up. This happens when once-successful companies rest on their laurels and become complacent, self-protective and stagnant. When they do, employees have no path to a better state and decline sets in.
To overcome this tendency, our principle-based framework empowers our employees to reach a better state by motivating them to maximize their contribution to their organization’s and organization’s long-term success. This entails ensuring they have meaningful work that fits their talents and passions, have appropriate control over their activities, are able to develop and grow, have the opportunity to be creative and receive meaningful rewards.
Principles in Brief: Life of Meaning and Synergy
Viktor Frankl, a psychiatrist and Holocaust survivor, believed that we all need “the striving and struggling for some worthy goal…the call of a potential meaning waiting to be fulfilled. . . . That the more one forgets himself – by giving himself to a cause to serve, or another person to love – the more human he is and the more he actualizes himself.”
While imprisoned, he learned that even when experiencing great difficulty, we have the power to choose our response. He gave the example of “men who walked through [the concentration camp] comforting others, giving away their last piece of bread.” Those who did so had a better chance of surviving, because it gave them a reason to live. Frankl also taught that when people have no meaning in their lives, they default to the destructive paths of power or pleasure.
Psychologist Abraham Maslow believed that this pursuit of meaning is a deeply personal journey because everyone differs in their aptitudes, interests, goals, experiences and circumstances. We increasingly self-actualize as we learn about ourselves – what we care about as well as what we are and are not good at. This better enables us to contribute and succeed, and help others do the same.
In Maslow’s view, we most fully self-actualize when we can achieve what he called synergy by resolving the “dichotomy between selfishness and unselfishness…when by pursuing [our] own self-interest, [we] automatically benefit everyone else, whether [we] mean to or not.” He believed it was possible for societies and organizations to create these conditions.
Maslow and Frankl found that people prefer meaningful work to meaningless work. Studies have found some janitors to be among the most self-actualized hospital employees. Those in hospitals that enable them to understand how they contribute to the well-being of patients and the smooth functioning of the hospital can experience deep satisfaction and meaning in their work. Similarly, Maslow explained that "washing the dishes can be the most meaningless chore or it can be a symbolic act of love for one’s family.” Thus, what’s important is not the nature of the work itself but our understanding of its purpose and who it is helping.
As employees, we find greater meaning in our work when we understand how it contributes to improving other people’s lives and the overall success of the company. Feedback, recognition and rewards help us understand what is valued by others, thereby enabling ourselves and others to experience greater synergy, and our organization and society to experience greater success.
Mutual Benefit
What is Mutual Benefit?
This principle guides us to take a win-win approach in all we do. It goes beyond a simple transaction that benefits both parties – it's a proactive mindset that causes us to seek out relationships and opportunities where we can succeed by benefiting others. When we do this while consuming fewer resources, our profit is a result of benefiting our customers and society. This principle also guides us to avoid situations where one party benefits at the expense of others (win-lose).
Why is it important?
Mutual benefit is foundational to the role of business in society and organization’s Vision. It is the only way to succeed long-term. That is why we pursue mutually beneficial relationships with all core constituencies – employees, customers, suppliers, partners, communities and governments. We seek to understand what they value and then cooperate with them to achieve mutually beneficial outcomes. Trust is the foundation for such relationships.
Principle in Brief: Mutual Benefit
In 1776, Scottish economist and philosopher Adam Smith observed that people in a civilized society always require the cooperation and assistance of others. We obtain what we need by providing others with what they want. This simple idea, which today we call mutually beneficial exchange, when widely practiced, has lifted much of the world’s population out of poverty and subsistence.
Mutual benefit is foundational to the role of business in society and organization’s Vision. We seek to understand the needs of our constituencies, starting with providing products and services our customers value more than their alternatives. When we do this while consuming fewer resources, our profit is a result of benefiting our customers and society.
Some people believe that exchange is zero-sum – for one side to win, the other side must lose. This can be the case – such as when one party benefits at the expense of the other party through involuntary extraction. Whether legal (government bailouts, subsidies, mandates and tariffs) or illegal (fraud and theft), these win-lose approaches are always harmful to society.
Exchange is a positive-sum endeavor when it is voluntary and mutually beneficial. Both parties cooperate to get more of what they value and will only transact if both believe it will make them better off. This win-win approach respects each party’s right to choose whether or not to transact. It is the only way to ensure value and good profit are created.
When companies are allowed to profit through extraction and exploitation, they avoid the constructive competitive pressure to innovate and create value for others. When companies can only profit through voluntary cooperation, they have a strong incentive to innovate and anticipate ways of satisfying customers.
At organization we strive to apply a win-win philosophy in all we do. That is why we pursue mutually beneficial relationships with all core constituencies – employees, customers, suppliers, partners, communities and governments. We seek to understand what they value and then cooperate with them to achieve mutually beneficial outcomes. Trust is the foundation for such relationships.
Contribution-motivated employees are essential to applying a philosophy of mutual benefit. They are collaborative, build trusted relationships and make those they work with better.
Examples
Part of applying mutual benefit is looking for win-win situations and avoiding win-lose situations.
Win-Win
Supplier X shares our vision for creating value, understands our priories, and provides superior service. We pay Supplier X about 5% more than our next best alternative.
Although Greta’s supervisor, Vance, values having her on his team, he encourages Greta to pursue a role in another Koch company that will allow Greta to expand her skills and contribution.
Win-Lose
Theo works below his abilities so he won’t be asked to do more.
To hit their quarterly sales goals, a salesperson misrepresents the features of a new product to the customer.
Suppose...
An effective vision helps us make timely and effective decisions that focus on long-term success and not simply focus on today's immediate issues or this year's results.
Consider your vision and evaluate your activities and results:
What gaps do you see between what's possible and how your team is performing today?
What could your team do that's radically different (transformative) to create more value for customers and the company?
Resources:
Five Dimensions
What are the Five Dimensions?
Together, the five dimensions provide a framework for applying principles of human progress to enable everyone to improve their own condition by helping others improve theirs.
A dimension organizes principles of human progress to make them more effective in improving essential aspects of individual and organizational success.
Because the five dimensions are interrelated and mutually reinforcing, they are most effective when applied holistically.
No matter what your job is, you are expected to apply the five dimensions to get better results.
Using the Five Dimensions to Identify and Close Gaps in Your Work
At organization we continually seek to close the gap between what we are accomplishing and what we could be accomplishing if we were fully applying our principle-based framework. To identify ways to increase your contribution, ask yourself, your supervisor or others the following questions:
Brad Razook, Executive VP, Koch Industries: "When your group isn’t functioning as well as it could, you’ve got to figure out what’s missing. What are we missing in those five dimensions?"
Examples: Applying the Five Dimensions
Below are examples of employees applying the five dimensions in different situations.
Connecting to Vision: Ayla discusses the Vision questions in the “Using the Five Dimensions to Identify and Close Gaps” tool with her supervisor and teammates. As a result, she has a better understanding of what her team is trying to accomplish. Ayla finds she has better ideas for improving team processes and what skills she wants to sharpen since the discussion.
Improving Team Effectiveness: Martin’s team has been doing okay, but he believes they can do more. He works with his supervisor to talk through the five dimensions, using “Supervisor Responsibilities and Expectations” as a guide. They decide the Comparative Advantage Dimension is where Martin needs to focus first. Martin begins by talking with each team member about their responsibilities and expectations and exploring new ways to organize the group’s work.
Starting Something New: A new project team decides to be disciplined about using the five dimensions from the onset of their project. While this was a new approach to some team members, at the end of the project they all agreed that proactively using the five dimensions led to better results.
Solving a Problem: Several customers have complained about late deliveries. Maurice can see from the data that the number and length of delays have increased over the last quarter. Maurice brings together a small group and uses the five dimensions to explore the problem and identify gaps that need closed.
Vision Dimension
Applying this Dimension
The Vision Dimension directs an organization to select the opportunities that, given its capabilities, will enable it to maximize its long-term success. Principles in this dimension also help us:
Develop a shared vision.
Identify and close gaps between today’s performance and what is possible.
Stop/modify activities that are not profitable.
Build the capabilities we need to make the greatest contribution.
The Vision Dimension and You
The Vision Dimension helps you connect to the team/organizational vision so you can:
Maximize your contribution while continually developing your potential.
Prioritize and make good decisions, including stopping unprofitable activities.
Innovate and drive transformation in a mutually beneficial way.
Try It
Applying the five dimensions often requires reflection, asking questions, and discussion. Below are some prompts to get you started.
For Everyone
Maximizing my group’s contribution to organization's long-term success.
Do I understand my group’s and organization’s visions and how I can best contribute to them?
How do I use these visions to prioritize, make decisions, identify opportunities and innovate?
What capabilities does my group need to add or improve?
For Supervisors
Help each employee better understand and embrace the team/business vision (and associated strategies and priorities) so they can make the greatest contribution to organization.
Work with your team to close gaps between today's performance and what is possible. Continually seek to transform.
Engage with your team and your own supervisor to better identify and stop or modify activities that are not profitable.
Think long term. Build, acquire or develop the team capabilities needed to make the greatest contribution.
Organization's Vision
Virtue and Talents Dimension
Applying this Dimension
The Virtue and Talents Dimension focuses on the culture and personal attributes necessary for long-term success. Principles in this dimension also help us:
Hire and retain contribution motivated people who have a diversity of aptitudes that can help us advance our vision.
Support each employee to develop and become more contribution motivated.
Continually adjust so teams have the right combination of perspectives, experiences, aptitudes, knowledge and skills to drive profitable transformation.
The Virtue and Talents Dimension and You
It helps you self-actualize and become more contribution motivated so that you:
Contribute to a culture that exemplifies Our Values.
Develop your gifts so you can contribute more and have the career you want.
Use our principle-based framework to guide your work.
Try It
Applying the five dimensions often requires reflection, asking questions, and discussion. Below are some prompts to get you started.
For Everyone
Living Our Values and strengthening our culture.
How can I improve my understanding and application of Our Values? What other principles would help me contribute more?
What will enable me to become more contribution motivated? Who can help?
How do I further develop my talents?
For Supervisors
Hire, develop and retain contribution-motivated employees with a diversity of aptitudes so your team’s culture more fully exemplifies Our Values. Work with your employees so each is in the right role with the right responsibilities and opportunities to self-actualize.
Treat your team members as individuals. Personalize your coaching of each, including high performers, to help them learn what they are and aren’t good at so they can self-actualize and increase their contribution.
Continually make changes so your team has the right combination of perspectives, experiences, aptitudes, knowledge and skills to drive profitable transformation.
Lead by example. Use and ensure your team uses our principle-based framework to guide what everyone does.
Expectations of Every Employee
To be successful long term, we need employees who are motivated to maximize their contribution to the long-term success of organization consistent with Principle Based Management and have the ability to help the team succeed. Our Values and the principle of Contribution Motivated can help employees understand what is expected of them.
Knowledge Dimension
Applying this Dimension
The Knowledge Dimension addresses the need for continual learning, innovation and transformation to succeed long-term in a rapidly changing world. Principles in this dimension also help us:
Create an inclusive team environment where decision making is improved by challenge.
Use measures and good economic thinking to understand and face reality.
Build and strengthen knowledge networks.
Develop well-designed experiments that help us learn quickly.
The Knowledge Dimension and You
The Knowledge Dimension helps you apply principles to improve and succeed in a rapidly changing world by:
Engaging in challenge and developing knowledge networks to help you and others improve.
Developing good economic thinking skills and taking profitable risks.
Working with your supervisor to develop measures that help you make good decisions.
Identifying experiments that could increase learning and profitability.
Try It
Applying the five dimensions often requires reflection, asking questions, and discussion. Below are some prompts to get you started.
For Everyone
Continually learning to succeed in a rapidly changing world.
How can I improve my knowledge networks to better innovate and transform? In what ways can I better share knowledge and motivate others to do the same?
What information, measures and principles would help me understand which parts of my work are profitable? What do I need to start, stop, change or improve?
How can I better provide and solicit beneficial challenges and use them to help me and others improve?
What experiments would enable us to learn how to increase profitability?
For Supervisors
Enable every team member to learn and improve so they can better help us succeed in a rapidly changing world.
Create an inclusive team environment where decision making is improved by soliciting and providing challenge, seeking and sharing knowledge, and identifying and closing gaps.
Help your team experiment effectively, take profitable risks and develop good economic thinking skills.
Develop and modify your team’s measures so they provide the information required for marginal analysis and insights that improve stewardship and profitability.
Comparative Advantage Dimension
Applying this Dimension
The Comparative Advantage Dimension guides the division of labor so that everyone can contribute the most to the long-term success of the organization. Principles in this dimension also help us:
Foster a clear, shared understanding of responsibilities, expectations and decision rights.
Hold each other accountable for positive and negative contributions.
Remove barriers that stifle good decision making and collaboration.
The Comparative Advantage Dimension and You
The Comparative Advantage Dimension helps you apply principles to maximize the contributions of the team by pursuing work that you’re good at and care about. This includes:
Collaborating with your co-workers to do more than any one person could do on their own.
Developing a clear understanding of your responsibilities, expectations and decision rights.
Collaborating and cooperating with others.
Holding yourself and teammates accountable for results and behavior consistent with Our Values.
Try It
Applying the five dimensions often requires reflection, asking questions, and discussion. Below are some prompts to get you started.
For Everyone
Given the opportunities, fostering superior application of individual abilities, cooperation and teamwork.
Given my interests and abilities, and those of other team members, how can my supervisor and I optimize my role?
Is my group continually reoptimizing roles and responsibilities as team members and conditions change?
For Supervisors
Maximize what your team and organization can accomplish by applying division of labor by comparative advantage so each employee makes the greatest contribution relative to the contributions of others.
Seek mutual benefit. Help each team member pursue work they are good at and care about in a way that maximizes the team’s overall results. Proactively revisit comparative advantage as team members and conditions change.
Foster a clear, shared understanding of responsibilities, expectations and decision rights with each employee. Hold yourself and team members accountable for results and behavior consistent with Our Values.
Remove barriers that stifle good decision making, collaboration and employees being in roles where they can best contribute.
Motivation Dimension
Applying this Dimension
The Motivation Dimension aligns everyone’s abilities, interests and incentives so they maximize their contribution to the organization’s long-term success. Principles in this dimension also help us:
Recognize and reward value creation.
Ensure supervisors know their employees and motivate each based on what is meaningful to them.
Remove barriers so individuals can contribute more.
The Motivation Dimension and You
The Motivation Dimension helps you recognize that you succeed by maximizing your contribution to organization's long-term success. It includes:
Contributing in ways that are rewarding to you personally.
Proactively creating value in new ways.
Having conversations with your supervisors about ways to earn more by contributing more.
Identifying barriers that keep you from contributing more and seeking help to overcome or remove them.
Try It
Applying the five dimensions often requires reflection, asking questions, and discussion. Below are some prompts to get you started.
For Everyone
Recognizing that I succeed by maximizing my contribution to organization's long-term success.
How can I make my work more energizing and meaningful to me?
Have I asked my supervisor how to increase my compensation by improving my contribution?
What external and internal barriers keep me from contributing more? Who can help me overcome or remove them?
For Supervisors
Motivate each employee to make the maximum contribution to the team and organization's long-term success by realizing their potential.
Know your employees well enough to motivate each based on what is important to them, such as pay, meaningful work they have some control over and care about, and opportunities to develop and be creative.
Encourage employees through your actions as well as words so they proactively create value in new ways.
Recognize and reward value creation, not activities. Communicate with each team member so they understand how they earned their compensation and can increase it by contributing more.
Transformation
Our Value: Transformation
Transform yourself and help the company and others to do the same. Develop the visions, strategies, capabilities, products and services that will enable us to satisfy unmet needs and create superior value.
What is Transformation?
Transformation doesn’t mean doing what we’ve been doing a little better or faster. It means doing things in entirely new ways, such as: creating new and better products and services, using new technology, combining existing methods and technologies in new ways, significantly reducing the resources consumed and eliminating unprofitable activities.
Why is this important?
Transformation is one of Our Values because if we do not continually transform, we will become obsolete and fail. No matter how well we (as a company or individuals) are performing today, we must transform at a greater rate than current and future competitors. This is only possible in an entrepreneurial culture where employees drive transformation from the bottom up rather than waiting for a top-down grand plan.
Principles in Brief: Transformation
Not only is our world rapidly changing, the rate of change is accelerating. We have long emphasized the importance of continuous improvement; however, today we need more than that. We need continual transformation which requires a heightened sense of urgency. If we do not continually transform, creative destruction and entropy will overwhelm us, and we will fail.
Transformation doesn’t mean doing what we’ve been doing a little better or a little faster. It means doing things in entirely new ways, such as: creating new and better products and services, using new technology, combining existing methods and technologies in new ways, significantly reducing the resources consumed and eliminating unprofitable activities. None of these happen without employees who are contribution motivated. For every innovation there is an innovator – and likely many contributors. For every improvement there are employees with the initiative, ideas and skills to make it happen.
Transformation also requires building knowledge networks to inform us of methods, technologies and trends from anywhere in the world that might improve, disrupt or destroy what we do today. These knowledge-sharing networks, both internal and external, along with reality-based measures and well-designed experiments, are critical to achieving the necessary rate of transformation. If we are protectionist and close ourselves off from competition or innovation we will become obsolete.
Transformations only come about if we transform ourselves. This starts with a willingness to undergo the most difficult and painful of all changes: changing our paradigms. Developing new paradigms and habits based on principles of human progress involves focused and prolonged effort. Consider what’s required for a bodybuilder to transform into a marathon runner. Long-term success also entails continually seeking help to acquire new knowledge and skills. Being a lifelong learner is essential.
Our organization is transformed when we continually develop and update its vision, strategies, capabilities, products and services to create superior value and satisfy unmet needs. This is only possible in an entrepreneurial culture where employees are eager and willing to drive transformation from the bottom up rather than waiting for a top-down grand plan. While some transformations are big leaps forward, many are the cumulative result of employees continually challenging and pushing themselves and their teams to find new ways to create value.
Organization’s transformations have always depended on employees who are contribution motivated – who know that no matter how well we (as a company or individuals) are performing today, we can always do better. If we dedicate ourselves to understanding and applying the principles of human progress to continually transform ourselves and our organizations, we can accomplish more and have better lives than we ever imagined.
Examples
Here are some examples of what transformation can look like for individuals and the organization.
Transform Yourself
Barry has been a welder for 25 years. A few years ago, he learned how to weld using robot-assisted technology. Now he is learning to program these robots. Barry hopes that one day welders won't ever need to work in dangerous environments.
Ren’s team is not getting the results they would like. After talking to a mentor and her supervisor, Ren realizes she overly relies on rules and processes to lead her team. With their help, she works hard to change her leadership paradigm. She strives to lead with principles and especially focuses on how she provides feedback to her team. Instead of providing detailed instructions, she discusses goals, gives them principles to consider and asks them for their ideas.
Help Others Transform
As Barry has been learning more about robotic welding, he's also learned how people can work with other computer-assisted technologies. When Louanne tells him about a new quality testing technology, he brings along other team members to help them learn as they explore its possibilities.
As Ren focuses on providing quality feedback, she identifies knowledge gaps of each team member. Some are so used to taking directives that they are uncomfortable using judgment. Ren is now helping them develop knowledge and critical thinking skills so they can apply principles to make decisions. Over time, Ren notices the team is getting better results and is encouraged by their development.
Help the Company Transform
Barry continues to work with his supervisor and others to determine if they can use robot-assisted or drone technology for machine inspections. They are striving to make inspections safer with minimal interruptions to production.
Ren's team is performing much better. As they have embraced the principles of mutual benefit and Principled Entrepreneurship, they have developed new ways to meet their objectives—including a transformative way to process customer orders. It's been a win for Ren, her team members, customers and the company.
Headwinds and Tailwinds
What is the Headwinds and Tailwinds principle?
This principle helps us understand the powerful, sustained factors that affect the competitive landscape. Headwinds can destroy demand, intensify competitive forces and/or increase costs. Tailwinds can increase demand, weaken competitive forces and/or lower costs. It’s important to remember that headwinds or tailwinds are not temporary conditions.
Why is it important?
Applying this principle helps our businesses transform their ability to succeed in a variety of environments by modifying visions and strategies and building or strengthening capabilities. It also helps us make good decisions about entering, exiting or remaining in a business.
Principle in Brief: Headwinds and Tailwinds
We have long emphasized the importance of continually improving to drive rather than be a victim of the increasing rate of creative destruction. But in recent years, as the speed and magnitude of these changes accelerated, a heightened sense of urgency was required to not only improve but transform our performance. This led our businesses and capability groups to apply the concept of headwinds and tailwinds to transform their ability to succeed in a variety of environments by modifying their visions and strategies and building the required capabilities.
Headwinds exist for a product where its long-term opportunities and profitability are being seriously eroded by declining demand or a reduction in the barriers to entry. These winds can be generated by, among other things, competition from new technologies or products, unfavorable changes in consumer preferences or government interventions.
Tailwinds exist for a product where its long-term profitability has the potential to greatly increase. These winds can be generated by, among other things, new technologies, products or strategies, favorable changes in customer preferences or distortive government subsidies and mandates.
Wherever a headwind or tailwind exists it creates competitive forces in the opposite direction. The effects of headwinds are lessened by negative factors, such as those listed above, which deter new entrants, investments and innovations. The effects of tailwinds are lessened by stimulating a flood of new competitors, investments and innovation.
The headwinds/tailwinds model we developed for entering or remaining in a business, based on whether we have or can build the right capabilities for whatever conditions exist, has been a major factor in our recent successes.
Examples
Notice how these examples are all powerful, sustained factors that affect the competitive landscape.
Headwinds
The creation and popularity of smartphones created headwinds for companies that made things like standalone music devices (ex: MP3 players), watches, alarm clocks, and landline phones/services.
As casual clothes have become more acceptable in many facets of our lives, companies that make more formal wear face headwinds because of this change in consumer demand.
As electric vehicles have become more popular and favored by government policy, manufacturers of combustion engines and automobile parts are facing headwinds.
Tailwinds
The creation and popularity of smartphones created tailwinds for companies with online, self-service capability – such as online banking and video streaming.
As casual clothes have become more acceptable in many facets of our lives, companies that make casual clothes have experienced tailwinds.
As electric vehicles have become more popular and favored by government policy, manufacturers of batteries and electric components and systems are experiencing tailwinds.
You and your supervisor should work together to ensure your role is an individualized bundle of responsibilities and expectations that fit your aptitudes and interests and help you make the greatest contribution to the team and company. As such, RREs are your connection to advancing the vision!
Developing your RREs is not a "one and done" activity.
Consider discussing the following with your supervisor:
Do you understand how each of your responsibilities contributes to the team/business vision?
Are there any aspects of your job that don't seem to advance the vision and/or the purpose is not clear?
Resources:
Roles, Responsibilities, and Expectations (RREs)
Overview: Role, Responsibilities and Expectations (RREs)
Dave Robertson, Co-CEO and Vice Chairman of Koch, Inc.: "Good supervisors or leaders need to connect their employees to the vision, the strategies and the priorities of the business...[RREs] should be developed between supervisors and employees...to help guide what the employee works on."
What are RREs?
Role, Responsibilities and Expectations help you and your supervisor work together to ensure your ROLE is an individualized bundle of responsibilities and expectations that fit your aptitudes and interests and help you make the greatest contribution relative to others.
RESPONSIBILITIES define what you “own” or take care of based on comparative advantage. You are held accountable for your responsibilities. Examples include products, services, assets, activities, employees, projects, systems, and processes.
EXPECTATIONS focus on the desired outcomes rather than on the activities that might be required to produce those outcomes. They should be clear, specific, and, whenever possible, measurable.
A Principle-Based Approach
It is important to understand the principles that inform our approach to RREs. Without this knowledge, misapplications often occur. Here are some common misapplications (RREs are NOT...) and principles we strive to apply instead.
What Does Developing Your RREs Look Like?
Fundamentally, developing RREs is a series of ongoing conversations with your supervisor. You will discuss and consider:
Your business/team vision and associated strategies, goals and objectives.
The nature of the work and what good looks like.
Your gifts, skills, interests, development opportunities and possible stretch assignments.
The gifts, skills and interests of other team members.
While many people find it beneficial to summarize their RREs in a document, that’s not the primary goal. Creating a document without conversations and a shared understanding is wasteful.
You might find the RRE Development Worksheet to be helpful as you work with your supervisor to define your responsibilities and expectations.
How Do You Use Your RREs?
You should use your RREs to focus your efforts and increase your contribution by…
Understanding how your work contributes to business results
Prioritizing work and eliminating waste
Leveraging your gifts and demonstrating entrepreneurship
Exemplifying stewardship with the resources entrusted to you
Examples: RRE Conversations
Developing and using your RREs to focus and increase your contributions is an ongoing process – one that prompts you to adjust as conditions change. Here are a few examples of RRE conversations.
Changes in Vision or Priorities: Ari’s supervisor recently explained how their business strategy is changing from a regional support model to a national support model. In a one-on-one meeting, Ari describes how he sees his responsibilities changing – including dropping one that is no longer a priority. Ari’s supervisor agrees, and they spend the rest of the meeting exploring what good looks like.
Someone Leaves the Team: Evelyn supervises the marketing team. An employee recently left the team, so Evelyn talks to each team member about how they might adjust their responsibilities. Each shares new responsibilities they want to take on and responsibilities they want to de-prioritize or give up completely. Evelyn takes time to consider everyone’s input and then works with each to adjust their RREs.
Too Much Work: Remi’s work seems to come in waves – he's either slightly overwhelmed or completely overwhelmed. He talks to his supervisor about it, and she is surprised to learn how much Remi is doing when things are busy. Together they discuss different ways to smooth out the workload. While this is just the beginning of an ongoing conversation, Remi is pleased they’re working together to address it.
Too Little Work: Fern gets done with her primary tasks quickly and is ready to do more, so she talks to her supervisor about taking on more responsibilities. They discuss various ideas, including a few stretch assignments, and decide to get back together next week after Fern considers what she is most interested in trying.
How Are RREs Related to Other Aspects of Employee Development?
RREs are one aspect of employee development—because each of us can develop through the work we are doing. All employee development activities have a purpose and are interrelated.