Cracks in the Culture

As Dealogic matured from small startup to a major international player, Toby Haddon, its COO, started to see some cracks in the culture. Demand for Dealogic’s services had grown briskly over the last twenty years. To keep quality high in the face of growth, managers kept refining internal processes, which included quantifiable performance metrics.

Ordinarily, process refinement sounds pretty good if you are a COO. But it can also present long-term problems, which I touched on in chapter 2: it can replace intrinsic motivation with extrinsic motivation. KPIs and the accompanying career implications lead the fear system to dominate the seeking system, taking creativity and enthusiasm down with it.¹ The extrinsic rewards crowd out the intrinsic buzz.

This was beginning to happen at Dealogic. Haddon saw less zest. Fewer employees were turned on by what they did every day. Employee enthusiasm was drifting downward as anxiety about performance metrics was on the rise. Programmers showed less enjoyment of elegant programming, and focused more on whether they would receive their bonuses. Instead of thinking about their work in terms of learning how to do cool new things and mastering new languages or approaches, employees talked about their work in terms of KPI targets.

Haddon watched as some of the best developers and architects in both Budapest and London started to get bored and switched off. Not just emotionally switched off, either: people were applying for more interesting jobs elsewhere where they could learn new things instead of just exploiting what they already knew, month in and month out. They were fighting learned helplessness, which we now know is bad for physical health. And there were many, many job options for programmers with their experience and talent. Haddon had won the old war for talent by attracting these incredible people, but he was losing the new war for talent by failing to keep their seeking systems activated.

To some, it may seem counterintuitive that it can be bad for people to focus on outcomes and measurements of performance. But the phenomenon that Toby Haddon was watching unfold is the same exposed by Amy Edmondson in the open-heart surgery teams. When agility and innovation are called for, it’s better for employees to frame their goals around learning (e.g., developing a new set of skills; mastering a new situation) rather than performance outcomes (e.g., hitting results targets; proving competence).

Don Vandewalle and his colleagues found similar results when they asked sales reps to fill out a survey when a new product had been introduced. Salespeople answered one set of questions about learning goals (for example, “Learning how to be a better salesperson is of fundamental importance to me.”) They answered another set of questions oriented toward achievement goals (such as “I spend a lot of time thinking about how my performance compares with other salespeople’s.”). Later, after the product promotion was over, the researchers looked at how many units each salesperson had sold. It turned out that employees with a learning mindset sold significantly more of the new product: in fact, simply knowing salespeople’s mindset let the researchers predict 11 percent of the sales that were made.²

A raft of studies over the last twenty years align with Vandewalle’s and Edmondson’s findings.³ Simply put, learning goals are more effective at improving performance in changing environments where innovation is important. This is because they draw our attention away from the end result and encourage us instead to use our curiosity and discover novel strategies.

Capitalizing on Creativity

To activate employees’ seeking systems and prompt a learning mindset at Dealogic, Haddon and I borrowed concepts from 3M’s “bootleg time” and Atlassian’s ShipIt program.⁴ These are essentially programs that give people free time to experiment with their own projects and interests, a little like Google’s “20 percent time” idea (more on that later).

In our experiment at Dealogic, we gave forty engineers in London and Budapest twenty-four hours to work on whatever they wanted, with whomever they wanted. We encouraged, but did not demand, cross-discipline teams of, say, engineers and software architects. The only suggestion was that people should work on something connected with Dealogic and/or the technical stack under which they operate. Because less-technical people were involved, there was no requirement that the solution had to be coded. Then, after twenty-four hours, all project teams (sometimes comprising just one individual who had decided to work alone) would meet back and present to each other and to senior management (CEO, managing director, COO) what they had experimented with and what they had learned.

By the Wednesday of the event, teams submitted an idea they wanted to explore. These write-ups were very light, but they specified who was on the team, the general topic, and the scope of the experiment. Creative Capital ran from 2 p.m. on Thursday until close of business on Friday. The office space remained open for the full period, and food and drinks were provided on Thursday evening for anyone staying late. People were asked to stop working on their projects at 2 p.m. on Friday, and the remainder of the afternoon focused on presentations from each project.

As Antony Trapp, a Dealogic leader who helped manage the event internally, described it:

We called the project “Creative Capital” because if the management team liked the direction of an experiment, they invested into the team. But they didn’t invest money; they invested time. Overall, forty percent of the projects received some level of time funding, and were moving forward the next week. For example, Lipot’s team, which had created the notification system to send news out to clients’ phones, already demonstrated some functionality. That team received two weeks to play the ideas out into an application. The team really threw themselves into it, and two weeks later they delivered a fully functioning app that worked on three phone platforms, and also had dealt with the security issues. This investment of time meant that the team’s own experiment in learning became part of their “real job.” To put it another way, they got paid to pursue their own innovations.

Another team created a refreshed version of a website showing the status of test systems. This idea got traction even more quickly—their concept was in the process of going live the Monday following the event. As of the Wednesday after the event, another project (around smart search) was already being included in a project. The same was true of promising ideas that needed further development. If management saw the potential in a person’s idea, they might tell her to spend a half day per week pursuing her idea.

After the event, employees’ were asked to fill in anonymous surveys. Their open-ended comments were very positive. Several showed the enthusiasm that can be activated by experimenting. One employee wrote, “It’s been a great experience, and moved a lot of people from the ‘grey weekdays.’” Another wrote, “This let us start to THINK and not just DO.” Another employee said, “It was good to see that company cares about the individual ideas. Keep it up.” A few weeks after the event, Trapp told me, “The atmosphere across the teams is better, and people certainly seem to be interacting in a more regular and positive sense.”

By encouraging employees to experiment and explore new ideas, Dealogic activated their seeking systems, resulting in zest and intrinsic motivation. The result was more exploration and creativity, which led to new ideas. In fact, Haddon told me, “The ideas coming out of these experiments have worked out much better than the dedicated R&D department we set up.” As Trapp observed about Creative Capital: “You show to the whole company what can be accomplished in twenty-four hours … we sometimes forget the basics. You have to focus on just the vital elements of the thing you’re creating. And then you see what people accomplish and you say ‘If we can do that in twenty-four hours, why can’t we do this with other things? We’re better than this.’ It’s a way to inspire ourselves.”

Some of the new ideas and products could be considered great outcomes. But even more broadly, and more importantly, the Dealogic experiment showed me that an innovation culture must be nurtured. It’s not enough to hire creative and highly motivated people; that’s the old war for talent. As a leader, you also have to activate people’s seeking systems to ignite their intrinsic motivation and creativity.

Keep the Momentum Going

Initiatives such as Creative Capital are great ways to energize employees and maximize their creative energy. This helps create an innovation culture in part because leaders are modeling experimentation and learning. At Dealogic, Toby Haddon and Antony Trapp tried something new, even though they didn’t know exactly where it would go or how it would work. Right off the bat, this uncertainty and experimentation created a kind of excitement that is hard to produce when you know exactly how an initiative is going to play out.

But, to be honest, it’s difficult to keep the momentum going.

We learned this lesson at Dealogic. Given the success of the first event, the leaders decided to “scale up” and hold four Creative Capital sessions per year. This seemed perfectly reasonable, given the success of the first event. Nevertheless, enthusiasm began to wane. Irfan Ikram, who had become the champion of the initiative, told me: “After three of four Creative Capital sessions, the event had generally lost its sparkle among a lot of staff members. Most people seemed disinterested in it due to factors ranging from the projects not going anywhere to it being hard to come up with an idea every quarter.”

Essentially, the initiative became just another business process. Employees started to grow weary of “forced freedom.” This resulted in fewer and fewer participants.

The lesson here—and the challenge—is that play can’t be contrived. It can be primed, but at the same time it has to be organic. It can take trial and error to find the right balance.

To address this issue, Dealogic’s management team tried to tie the event to a specific product challenge. Ironically, this took even more play out of the process for employees, and was even less successful. Ikram told me:

After meeting with groups of employees at each location, Ikram found a way that Creative Capital works best, at least at the time of writing this book. The event currently has its highest-ever participation rates across all regions. In New York, for example, the most recent event led to 30 percent more participation than in any other Creative Capital event. Some of the key adjustments included:

• Frequency. The event now runs twice a year, which gives employees enough time to think of ideas for the next event (a year in technology is a long time).
• Local focus. Dealogic established a steering group for each location’s event, and split each event so every region would run at a different time, allowing the steering group to focus.
• Judging panel. Based on feedback that the judging wasn’t transparent, Dealogic created easy-to-follow criteria and a five-person judging panel.
• Prizes. Even though intrinsic motivation was the goal, things went better when Dealogic rewarded the top three ideas with a £50 gift voucher, as opposed to only the top one.

So the leadership team had to play with different elements of the event to keep it fresh. It’s working great again for now, but of course they’ll need to keep experimenting with experimenting.

Changing the Game

Dealogic’s Creative Capital program is a micro version of a more comprehensive practice at Shell Oil.⁵ With over $100 billion in revenues, over 100,000 employees, and nearly a hundred years of tradition, Shell is not the type of organization where you’d expect to find entrepreneurial zest. In fact, one employee compared Shell to a maze of hundred-foot-high brick walls: access to capital is tightly controlled, investment hurdles are daunting, and radical ideas either die or move very slowly.⁶

Tim Warren, director of Research and Technical Services, set out to prompt innovation in the technical function of Shell’s exploration business. To trigger innovative new ideas, Tim tried to encourage employees to spend some their time working on “bootleg projects” and “nonlinear ideas” that are outside their normal job scope. He said the results were underwhelming—almost everybody was stuck in predictable, confined patterns of work. Which is not surprising when the drive to meet normal operations and hit existing KPIs consumes all our time and energy.

So Warren scaled things up by creating a small panel of employees with the authority to allocate $20 million to rule-breaking, game-changing ideas. The new practice, called GameChanger, started with the assumption that ideas could come from anywhere across the company, and did not need to come from a certain department. Then Tim waited for the avalanche of game-changing, revolutionary ideas. The avalanche was more like a trickle. The fact that even $20 million was not enough to break people out of their learned helplessness shows how shut off employees were to exploration.

But Warren didn’t give up. With the help of a consulting firm, he built a three-day Ideation Lab. Seventy-two would-be entrepreneurs showed up. Lots of them were employees whom no one suspected of harboring an entrepreneurial impulse. In the lab, these participants went through a process of discovery, focusing on disruptive changes in the external environment (both within and beyond Shell’s industry). They worked on how Shell might harness this disruption, overturning the normal rules of the game.

Going through this process turned participants on; in fact, because emotions are contagious, their enthusiasm created some curiosity in nonparticipants. So many people started checking in on the excitement in the lab that “the doors to the conference room had to be locked to keep the overwhelming number of ‘gate crashers’ out.”⁷

By day 2, the group had unleashed 240 new ideas. Some of the concepts were entirely new businesses, while others were new approaches within existing businesses. Like the Creative Capital program, the potential business concepts were then released into a kind of open market. Rather than organizational leaders funding people with time, however, at Shell, the investments were made by other Ideation Lab participants. These individuals responded to the “gravitational pull” that attracted them to one idea rather than another. It was self-selection at work. This means that in the end, groups of three to four individuals clustered around the business concept that most appealed to them.

But, as we will see later with Google, too much freedom and too many new ideas can cause their own problems. New ideas need a way to turn into reality and not just die on the vine. Tim Warren and his colleagues had worked hard to create an innovation space within Shell, and it paid off. A group of employees’ seeking systems had been activated, and the employees were ready to experiment with something that excited them. They were unclear what to do next, however. What Warren and his panel recognized was that “permission to innovate” is necessary, but not sufficient. What they needed next was a process to refine people’s promising ideas through a business plan phase.

To accomplish this goal, they built an Action Lab, designed as an intensive five-day experience to help people develop their ideas into compelling venture plans for launching new businesses. For this, the program moved away from Shell’s Hague headquarters to a fourteenth-century castle in Maastricht, Belgium. Here, Tim and his colleagues brought videoconferencing, video production technology, graphic artists, a film crew, venture capitalists, entrepreneurs, and marketing gurus together under one roof. It was a large investment in an innovation hothouse—an immersive, resource-rich environment designed to inspire and to incubate new ventures. The teams of Shell employees learned how to scope out the boundaries of their ideas, identify partnerships, determine the competitive advantage of their ideas, and calculate the financial implications. They were coached in developing hundred-day action plans, which formulated ways to learn fast—devising low-cost, low-risk ways of prototyping and testing their ideas in the marketplace. We saw a similar process in the white-goods plant that implemented lean manufacturing (chapter 5).

The Shell teams also were coached to bring their ideas to life using storytelling. They worked with the graphic artists who helped them create product prototypes, and they worked with video film crews to create short-length infomercials to communicate the essence of their ventures. At the conclusion of the week, each team presented a story to a venture board (the GameChanger panel, along with a sampling of senior Shell executives and leaders who knew how to fund late-stage technology commercialization). Four teams received six-month funding to put them on a path toward full-fledged business plans.

GameChanger has been a huge investment in innovation. The panel meets weekly to discuss new submissions, and its members serve as coaches and advocates for prospective innovators. Any employee with a promising idea is invited to give a ten-minute pitch to the panel, followed by a fifteen-minute Q&A session. If members agree that the idea has potential, the employee returns for a second round of discussions with a broader group of company experts whose knowledge or support may be important to the success of the proposed venture. Ideas that get a green light often receive funding—on average $100,000, but sometimes as much as $600,000—within eight or ten days. Each project goes through a proof-of-concept review, in which the team must demonstrate that its plan is indeed workable in order to win further funding. This review typically marks the point at which the GameChanger panel helps successful ventures find a permanent home inside Shell.

Of course, many projects are not funded, and not all of the projects that were funded worked from a commercial perspective. Like Dealogic’s Creative Capital program, the more important point is that the program triggered experimentation and learning, and energized people to play to their personal interests and unique strengths instead of feeling learned helplessness.

Both the employees and the corporation win when employees feel energized to innovate in this way. And about a quarter of GameChanger’s ventures have found homes in a Shell operating unit or in one of the company’s various growth initiatives, while others have been carried forward as R&D projects. The remainder have been wound down and written off as useful experiments. As described to me by my colleague Julian Birkinshaw, a professor of strategy at London Business School: “I think that GameChanger provides a process for the sort of hunch-based research that scientists demand, but which hard-pressed business sponsors are loath to underwrite.”

Getting the Balance Right

In this chapter, we saw different approaches for using experimentation and playing to personal strengths as a way to switch on employees’ seeking systems within their organizational frame. We saw how people gained enthusiasm and commitment and became more creative. Work started to feel more like real life to these individuals. This is where humanism fuels a sustained competitive advantage.

But getting the balance right between the freedom and the frame is not always easy. As we saw with both Dealogic and Shell, experimentation itself is something that needs to be experimented with to get it right.

Google’s “20 percent time” policy is probably the most famous example. It’s widely known that Google engineers were encouraged to spend 20 percent of their time on personal projects. The policy resulted in some successful products such as Gmail, AdSense, and Google Talk. Founders Larry Page and Sergey Brin even highlighted the importance of this management method in a founders’ IPO letter to prospective investors in 2004: “We encourage our employees, in addition to their regular projects, to spend 20 percent of their time working on what they think will most benefit Google … This empowers them to be more creative and innovative.”⁸

But in 2013, Google cut back on this policy. According to the engineers, managers clamped down on staff taking their 20 percent time to keep their teams from falling behind in Google’s internal productivity rankings. Managers were judged on the productivity of their teams, so time spent on the personal projects hurt them.⁹ The result has been more tightly-targeted innovation activities with more top-down framing of focus areas that spur the bottom-up innovations.¹⁰ As we saw in chapter 2, when companies like Google go from startup to large global business, they look to exploit more and innovate less so that they can derive more value from existing products. This requires a more operational focus on existing product lines. The frame gets smaller, and freedom to innovate shrinks.

It would be easy to condemn Google’s decision to cut its 20 percent policy as a shortsighted hampering of employees’ seeking systems—especially when the policy had a track record of proven innovations. However, remember the balance: freedom must be within the frame of what an organization needs to deliver. Twenty percent time might balance well when you have a hundred engineers, and every few months a good idea emerges that attracts other employees and the idea becomes a movement.¹¹ No doubt, this freedom to invent would be like a jolt of electricity to those employees’ seeking systems, fueling their zest and driving them to do more and more. However, the same freedom may not fit into an organizational frame with 20,800 engineers. Encouraging that many people to spend 20 percent of their time in discovery led to “too many arrows with not enough wood behind them,” as Google CEO Larry Page explained.¹² Perhaps letting a thousand flowers bloom ended up with a whole new bed of flowers growing each week, yet none of them being harvested and put to good use.

The tension between freedom and frame is very real in both directions. Most large organizations err on the side of too much frame and not enough freedom, but perhaps 20 percent was too much freedom. I’m proposing that leaders need to encourage enough freedom so that the frame does not become an iron cage, and employees feel they can experiment and learn.

The goal of this book is not to have you copy the specific ideas that these leaders used. If you can use them, great, but of course a good idea depends on industry or country culture. The most important takeaway is understanding the biological seeking system that all employees possess, and then investing to activate it. This happens when we create work environments where employees feel encouraged to play around with their intrinsic interests and personal strengths within the frame of the organizational demands.

This is not how personnel policies originally were set up under scientific management. This is not how hierarchical “power” usually works in organizations, and this is not how most of us have been taught to lead change. So, to close off this section of the book, in chapter 7 we look at our fundamental beliefs about what leadership is “for,” and how these beliefs affect our ability to trigger employees’ seeking systems.