I’ve been in the business coaching business for a few decades, but only recently got into the research business. Management ideas are good ideas, but they are just that. If you want to prove what actually drives financial results — and if you care about improving the lives of employees who drive those results — you need applied research.
My friends at Harvard Business School had been telling me this for a while, so I convinced them to help me test the validity of a management approach we call Economic commitment. It’s about partnering with employees to serve customers profitably. We have precisely defined what we mean by Economic Commitment, codifying it into five managerial practices. Three years after the research began, we have shared the first convincing results in these pages (more details are provided in the book I wrote with John Case–Payroll Partners).
While I’m a die-hard fan of this approach (and growing fanatic as research continues to strengthen the correlation between economic engagement and profitable growth), I like to remain agnostic about improvement processes. There are a lot of ideas out there, and there’s a lot to admire about them. Agile comes to mind first.
Praised by thought leaders in management and executives of large companies, it is a very effective set of tools for product design that is applied to all kinds of work fields. Agile forgoes traditional step-by-step planning and breaks work down into small two-week “sprints,” where self-managed teams focus on something they can easily tackle with what they have on hand. Multiple groups perform multiple tasks simultaneously, allowing rapid testing of prototypes with customers.
Back when I was a coach, before anyone outside of the software industry had heard of agile, I worked with Capital One, a slightly larger client than most small and medium-sized businesses. private that I usually coached.
We were helping director Dan Mortenson transform the company’s back-office unit, known as Production Services, which was considered a cost center. Dan thought the unit could serve customers more effectively if people in his organization started thinking and acting like it was a profit center. “If Production Services is going to be a business,” Mortenson said, “then the people who work there need to learn to think like businessmen.”
He and John Mavers, the head of human resources, dubbed the change in mindset: PDG, for “Committed Engaged Owners”. For all intents and purposes, he was nimble. The work of the unit was divided into several value-added operations. They consulted with their internal customers to determine which items were most valued, and they established “virtual contracts” with each of those customers. Then the teams started thinking about ways to improve key elements, testing and implementing their new ideas on the fly.
Just like the agile teams, they also rigorously tracked their results. And they shared their ideas and achievements through articles posted on the company intranet. In 18 months, production service costs fell by $5.6 million, and employees and customers were happier than ever.
Herein lies the best news about agility. If you run a small business or startup and can’t afford the extensive training of a Fortune-500, you don’t need to become a bona fide practitioner to reap the benefits of agile principles. In fact, you’ll find that there’s nothing magic about the agile perse – it’s just based on management principles that tend to work no matter what you call them. In many ways, agile is simply transparent team management.
In many ways, it’s economic engagement.
Both are based on autonomy; individual employees are empowered to think and act like owners. Teams are self-governed through accountability and transparency, and they are responsible for brainstorming and implementing innovations. Their goal is to serve customers better. Winning is defined objectively and progress towards goals is visibly tracked. Everyone understands how their role relates to the overall performance of the team. All of this has made Dan’s Capital One unit and agile teams around the world happier and healthier partners in the business. I’ve seen him do the same in engineering firms, landscaping companies, health service organizations, and more.
There is only one real difference, and it is significant.
Economic engagement is based on economic compensation, one of its five key practices. This means that the additional economic value created by teams must be shared with those team members. This means employees are seen as trusted partners rather than employees, and everyone has the opportunity to learn more about the company, contribute to its success, and share in the wealth they help create.
If people know their work performance is tied to an incentive like a quarterly bonus, they’ll likely develop new ways to deliver better results. They will naturally innovate to become more efficient, finding ways to complete work faster or improve quality without sacrificing cost. They will seek new approaches to better serve customers. In short, engaged employees live in a world of cause and effect. They understand how their actions contribute to the success of the whole company. Incentive plans, by definition, are meant to influence people’s behavior at work, day in and day out.
It’s not just good juju, it’s smart business. Otherwise, how can you really expect your employees to think like owners? Economic engagement doesn’t just show employees how to improve the business, it regularly reminds them why they are doing it.
There’s a reason Agile spread like wildfire when it hit the scene, and why we’re still talking about it. Because it works. Software turns out to be better and cheaper, developers seem to like focused work, and customers are more engaged. When other departments noticed how unified agile development teams were, they started adopting these ways of working for everything from budgeting to marketing to recruiting. And even if you can’t host massive training programs or embrace all of the technology and terminology agile offerings, you can still jump on that train. Just be sure to take your employees with you on the trip.