Grow an Innovation Culture - Transform - Product Details Lean Enterprise: How High Performance Organizations Innovate at Scale (2015)

Product Details Lean Enterprise: How High Performance Organizations Innovate at Scale (2015)

Part IV. Transform

Everyone thinks of changing the world, but no one thinks of changing himself.

Leo Tolstoy

If you’ve made it from the beginning of this book to here, you should have a pretty good idea of how to apply lean concepts and principles to make great software products, and of the importance of strategy and culture in enabling the discovery and exploitation of new businesses. But to reap the maximum reward for all our efforts, lean principles and concepts need to be scaled throughout the entire organization. Only when this happens will we realize the full value of the work we have invested in, exploring new ideas and exploiting those that deliver value to customers.

We readily grasp that these concepts work well to address the needs of rapidly changing environments and fierce competition. However, it is hard to extend lean concepts to process improvement, COTS applications, and the evolution and support of internal systems, particularly systems of record. Supplier and vendor relationships present a further obstacle. The nature of our relationship with suppliers of proprietary, specialized, or customized solutions often inhibits collaboration, fast feedback, or small incremental change. We need to seek suppliers who are willing to treat us as we expect to treat our own customers. We must encourage suppliers to listen to us, understand what we need, and experiment. They have to be willing to go on the journey of improvement with us.

To add further complexity to this problem, many of our traditional approaches to governance, risk, and compliance (GRC), financial management, procurement, vendor/supplier management, and human resources (recruiting, promotion, compensation) create additional waste and bottlenecks. These can only be eliminated when the entire organization embraces lean concepts and everyone works together in the same direction.

Making an enterprise lean is not a one-person or one-department show. It won’t work through a special tactical task force. We can’t mandate that from now on, everyone will work this way and expect them to adjust as per our implementation plan. Real lean transformation is the result of committed, fearless leaders who encourage and enable lean thinking to propagate throughout the entire fabric of the organization—not just customer-facing products. Those at the top need to walk the talk and be role models for everyone. They need to set aside egos, listen and respect contrary opinions, and build trusting relationships at all levels of the organization. This is essential for new leaders to emerge and for lean concepts and practices to become woven into the organization’s culture.

People must feel empowered to make decisions that involve risk and try out new ideas, while recognizing their responsibilities to customers and maintaining alignment with the overall organization strategy. As leaders, we need to set limitations and context for everyone, but ensure they are not unduly restrictive. When everyone is united in pursuit of a common purpose, and we have empathy with our customers and put serving their needs first, most people can figure out what risks are acceptable and what are not.

Conflict arises when our espoused values do not match up with actual practice. This is where modeling the behavior we hope to see in everyone is most important. There are no formulas, instructions, or rituals that will work for everyone. Each of us needs to take time daily, maybe even several times a day, to reflect on our own actions and decide if they support our stated values and work to move us in the right direction.

A lean mindset cannot thrive in an organization with a centralized, command-and-control management style. Nevertheless, we still need to maintain visibility and transparency into what everyone is doing. It is not easy for large organizations to find this balance, and we must recognize that constant adjustment will be required. Many people within our organization will perceive this cultural shift as threatening and will push back on it. Command and control is easy; I follow the rules and if it doesn’t work, it is not my fault. However, if you ask me to make decisions and take responsibility for them, someone might hold me accountable for the mistakes I am very likely to make. Give me command and control!

If we are successful at creating a lean enterprise, we will have failures and setbacks, at all levels and by all people. If we don’t, it means we haven’t created a high-trust, high-performance culture and are continuing to judge our performance by vanity metrics, not real outcomes. We’ll never have the culture of a learning organization if we can’t be allowed to make mistakes and get worse at something before we get better.

In this part, we concentrate our discussion on how to pursue the never-ending work of transforming the enterprise. We will address some of the most common areas where we see a mismatch between lean concepts and the prevailing leadership and management principles, practices, and processes. These gaps are revealed when we face obstacles that prevent us doing better at delivering value to customers, or when we are robbed of satisfaction and fulfilment in our daily work. Our hope is that readers will be inspired to find ways to overcome these obstacles, and to share their successes—and their failures—with others.

Chapter 11. Grow an Innovation Culture

The ability of your company to be competitive and survive lies not so much in solutions themselves, but in the capability of the people in your organization to understand a situation and develop solutions.

Mike Rother

We now accept the fact that learning is a lifelong process of keeping abreast of change. And the most pressing task is to teach people how to learn.

Peter Drucker

You know, I’m all for progress. It’s change I object to.

Mark Twain

Culture is the most critical factor in an organization’s ability to adapt to its changing environment. However, being intangible, it is hard to analyze and even harder to change. Every organization has its own unique culture, and there are “as many successful cultures as there are successful companies.”171 In Chapter 1 we presented the characteristics of a high-performance, generative culture. In this chapter, we discuss how to understand your organization’s culture and what you can do to change it.

Culture is constantly changing in every organization. New employees and leaders join, people quit, strategies and products evolve and die, and the market constantly shifts. The most important question is: can we mindfully evolve our organizational culture in response to these changes in environment?

To understand how to influence organization culture, we need to understand its foundations. We introduce a model of organizational culture and discuss how to measure it. We follow with strategies to kick-start organizational change, with the goal of making these strategies self-sustaining. Finally, we examine the relationship between individuals and organizations, and discuss how to hire and retain “good” people.

Model and Measure Your Culture

CEOs can talk and blab all day about culture, but the employees know who the jerks are.

Jack Welch

In The Corporate Culture Survival Guide, Schein defines culture as “a pattern of shared tacit assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.”172 The “tacit” part of this definition is important—and it is what makes culture so intangible. Shanley Kane, author of Your Startup Is Broken: Inside the Toxic Heart of Tech Culture, provides another perspective, commenting that “our true culture is made primarily of the things no one will say…Culture is about power dynamics, unspoken priorities and beliefs, mythologies, conflicts, enforcement of social norms, creation of in/out groups and distribution of wealth and control inside companies.”173

Even though culture is intangible, it is measureable, and there is a large body of work dedicated to precisely this task. Of course every methodology is based on an underlying model, and all models are limited to a different extent. Nevertheless, such measurements are important as a way of making culture visible and encouraging people to pay attention to it. Here are examples of work that has been done to measure culture:

§ Karen E. Watkins and Victoria J. Marsick developed the Dimensions of the Learning Organization Questionnaire (DLOQ), which has been extensively studied in the academic literature. You can take the questionnaire for free at

§ Gallup’s Q12 survey asks what they believe are “the only 12 questions that matter” to measure employee engagement. You can find the questions, along with more information, at

§ In Chapter 1, we discussed how the 2014 State of DevOps Report measured both job satisfaction and culture (using the Westrum model) and their impact on organizational performance. Analysis showed that Westrum’s model predicted both job satisfaction and organizational performance in the context of knowledge work. Read more at

Practicalities of Running Cultural Surveys

Whether you use a service or come up with your own survey, be careful about how much information is collected. To obtain honest answers, don’t ask people to disclose identifying information. Present results only in aggregate. It may be useful to capture some demographic information so you can see, for example, how results vary between genders or roles, but only when you have numbers large enough to provide anonymity. Be mindful of how the information can work against the respondents. At one large enterprise, managers reacted to poor survey results in their department by ordering their own reports to paint them in a better light next time.

Disassociate culture surveys from pay and performance reviews. Make the aggregated results available to all employees and ensure executives set up meetings to discuss the findings and plan next steps. Run surveys annually or semiannually to provide a baseline for comparison and measurement of change over time.

Measuring organizational culture and making problems visible is the first step. Next, we must investigate why a culture is the way it is. For this inquiry, it is helpful to use Schein’s model, which divides culture into three layers: artifacts, espoused values, and underlying assumptions(Figure 11-1).

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Figure 11-1. Layers of organizational culture

Inconsistencies between espoused values and observed behaviors within an organization are common. Observed behaviors are better indicators of real values. Who gets rewarded for what behavior? Who gets hired, promoted, or fired? In order to understand the nature and source of the real values, we have to descend to the level of underlying assumptions. This level is hard to unpack, but it is the most important to understand.

Schein presents an exhaustive typology of tacit assumptions, of which the most important are the beliefs leaders and managers hold about workers. In his management classic The Human Side of Enterprise, Douglas McGregor describes two contrasting sets of beliefs held by managers he observed, which he calls Theory X and Theory Y. Managers who hold Theory X assumptions believe that people are inherently lazy and unambitious and value job security more than responsibility; extrinsic (carrot-and-stick) motivation techniques are the most effective to deal with workers.174 In contrast, Theory Y managers believe “that employees could and would link their own goals to those of the organization, would delegate more, function more as teachers and coaches, and help employees develop incentives and controls that they themselves would monitor.”175

As we saw in Chapter 1, while extrinsic motivators such as bonuses are effective in a Taylorist world of routine, mechanical work, they actually reduce performance in the context of knowledge work. People involved in nonroutine work are motivated by intrinsic factors summarized by Dan Pink as “1. Autonomy—the desire to direct our own lives. 2. Mastery—the urge to get better and better at something that matters. 3. Purpose—the yearning to do what we do in the service of something larger than ourselves.”176

What is especially problematic is that, by generating behavioral responses that align with their management style, both types of managers believe their style works best. People whose management strategy is consistent with Theory X end up with employees who are passive, resistant to change, unwilling to accept responsibility, and make “unreasonable demands for economic benefits.”177 This is a rational response by employees to not having their higher needs satisfied through work. Work becomes something to be endured in order to get a paycheck.

In an organization whose leaders share Theory Y assumptions, their job is “the creation of conditions such that the members of the organization can achieve their own goals best by directing their efforts towards the success of the enterprise,”178 delivering value to customers and the organization while growing their own capabilities. Until leaders and managers with Theory X attitudes work to adopt a Theory Y mindset and demonstrate it consistently over time through their actions, they will not be able to achieve a perceptible difference in people’s behavior. The story of NUMMI in Chapter 1 is a good example of this shift in mindset and behavior.

Culture is hard to change by design. As Schein says, “Culture is so stable and difficult to change because it represents the accumulated learning of a group—the ways of thinking, feeling, and perceiving the world that have made the group successful.”179

Change Your Culture

In his revolutionary work Pedagogy of the Oppressed, published in 1970, Paulo Freire describes what is still the dominant model of teaching today. In this model, students are viewed as empty “bank accounts” to be filled with knowledge by teachers—not as participants who have a say in what and how they learn. This model is not designed to enable students to learn—especially not to learn to think for themselves—but rather to control the learning process, students’ access to information, and their ability to critically analyze it. In this way, the education system perpetuates existing social structures and power hierarchies.

Similarly, most companies seem to treat their employees as filled-up bank accounts to be drained of skills and knowledge in service of the company’s goals. This is the implication when we speak of employees as “resources” and wonder how to increase their utilization and productivity with little regard for their personal development. This kind of behavior indicates an environment in which employees exist primarily as providers of labor, not as active participants in creating value.180 In contrast, high-performance organizations are effective at both developing and harnessing the unique capabilities of their people.

Organizations with a “bank account” attitude to employees tend to treat change in a transactional way. This all too common and flawed approach involves funding a change program which is expected to “fix” the organization so it is fit for purpose. Organizational change is treated as a product—sold by consultants, paid for by leadership, and consumed by the rest of the organization as directed.

These change programs commonly focus on reorganizing teams and reporting structures, sending employees on short training courses, and rolling out tools and methodologies across the organization. These strategies usually don’t work because they are ineffective at changing people’s patterns of behavior. As Mike Rother points out in Toyota Kata, “what is decisive is not the form of the organization, but how people act and react.”181 This is determined primarily by the actions of leadership and management. To pick some examples: are people given the autonomy to act and trusted to take risks? Is failure punished or does it lead to enquiry and improvements of our systems? Is cross-functional communication rewarded or discouraged?

We began this book by discussing the case of NUMMI, in which a broken organization was reformed under a new leadership and management paradigm. Despite rehiring the same people, NUMMI achieved extraordinary levels of quality and productivity and reduced costs. In an article forMIT Sloan Management Review, John Shook, Toyota City’s first US employee, reflected on how that cultural change was achieved:182

What my NUMMI experience taught me that was so powerful was that the way to change culture is not to first change how people think, but instead to start by changing how people behave—what they do. Those of us trying to change our organizations’ culture need to define the things we want to do, the ways we want to behave and want each other to behave, to provide training and then to do what is necessary to reinforce those behaviors. The culture will change as a result…What changed the culture at NUMMI wasn’t an abstract notion of “employee involvement” or “a learning organization” or even “culture” at all. What changed the culture was giving employees the means by which they could successfully do their jobs. It was communicating clearly to employees what their jobs were and providing the training and tools to enable them to perform those jobs successfully.

Shook offers his own interpretation of Schein’s model, showing how people normally approach cultural change in contrast to the approach taken at NUMMI, in Figure 11-2.

NUMMI had an advantage in achieving their cultural change. The entire workforce was newly hired—with many workers having been freshly fired from their jobs at Fremont Assembly. It’s hard to achieve sustained, systemic change without any crisis. In The Corporate Culture Survival Guide, Schein asks if crisis is a necessary condition of successful transformations; his answer is, “Because humans avoid unpredictability and uncertainty, hence create cultures, the basic argument for adult learning is that indeed we do need some new stimulus to upset the equilibrium. The best way to think about such a stimulus is as disconfirmation: something is perceived or felt that is not expected and that upsets some of our beliefs or assumptions…disconfirmation creates survival anxiety—that something bad will happen if we don’t change—or guilt—we realize that we are not achieving our own ideals or goals.”183

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Figure 11-2. Old and new approaches to cultural change (2010 from MIT Sloan Management Review/Massachusetts Institute of Technology, all rights reserved, distributed by Tribune Content Agency, LLC)

Disconfirmation can come naturally from a number of sources that may threaten our survival: economic, political, technological, legal, moral, or simply a realization that we are not achieving our purpose. A common cause of unplanned disconfirmation is leaders acting in a way that contradicts their stated values. It is also possible to create disconfirmation in a controlled way through joint ventures, planned leadership activity, or by creating an artificial crisis.

Once people accept the need for change, they are confronted with the fear that they may fail at learning the new skills and behavior required of them, or that they may lose status or some significant part of their identity—a phenomenon Schein calls learning anxiety.

Schein postulates that for change to succeed, survival anxiety must be greater than learning anxiety, and to achieve this, “learning anxiety must be reduced rather than increasing survival anxiety.”184 Many leaders and managers make the mistake of trying to achieve change by increasing survival anxiety. This creates an environment of fear which, in turn, results in significant amounts of energy spent on diverting blame, avoiding responsibility, or playing political games.

The most powerful systematic tool to reduce survival anxiety that we have encountered is the Improvement Kata, described in Chapter 6. It is designed for people to safely learn new skills and experiment with new ideas in the pursuit of clearly defined, measurable organizational goals. Essential to creating a high-performance culture is an environment in which mistakes are accepted as learning opportunities to build systems and processes that reduce the impact of future mistakes.

Make It Safe to Fail

Your organization’s attitude to failure—whether of a change effort or simply a decision—is critical in creating an adaptive, resilient organization. Organizational theorist Professor Russell L. Ackoff noted, “It’s our treatment of error that leads to a stability which prevents significant change.” If people are told that making mistakes is bad, and if people are punished for them, the inevitable outcome is that they will avoid taking any risky decisions.185

In a complex, adaptive system such as an enterprise, nobody has perfect information. Every decision will have unintended consequences whose causes may be clear looking back, but are almost impossible to predict looking forward. Whenever it appears that one person is responsible for a given outcome, we should be honest and ask ourselves, “If I had been in the same situation, is it possible I would have made the same decisions?” Usually, the answer is “yes.”

Rather than punishing mistakes, we must ensure that people have the necessary information to make effective decisions, find ways to limit the possible negative outcomes of decisions, and be disciplined about learning from mistakes. For example, how do managers and leaders in your organization respond to failures? Do they lead to scapegoating, justice, or enquiry?

One practice often used by organizations with high-performance cultures is a blameless postmortem run after every incident or accident. The goal of the postmortem is to improve the system so that, in similar situations in the future, people have better information and tools at their disposal and the negative impact is limited.

At the beginning of every postmortem, every participant should read aloud the following words, known as the Retrospective Prime Directive: “Regardless of what we discover, we understand and truly believe that everyone did the best job they could, given what they knew at the time, their skills and abilities, the resources available, and the situation at hand.”186 A postmortem should aim to provide:187

§ A description and explanation of how the incident happened, from the perspective of those involved and affected, including a timeline of events and a list of contributing factors

§ Artifacts (recommendations, remediations, checklists, runbook updates, etc.) for better prevention, detection, and response to improve the handling of similar events in the future

Postmortems should not attempt to identify a single root cause. The idea that a single event can be identified as the cause of a failure is a misunderstanding of the nature of complex adaptive systems. As safety experts Sidney Dekker, Erik Hollnagel, David Woods, and Richard Cook point out:188

Our understanding of how accidents happen has undergone a dramatic development over the last century. Accidents were initially viewed as the conclusion of a sequence of events (which involved “human errors” as causes or contributors). This is now being increasingly replaced by a systemic view in which accidents emerge from the complexity of people’s activities in an organizational and technical context. These activities are typically focused on preventing accidents, but also involve other goals (throughput, production, efficiency, cost control) which means that goal conflicts can arise, always under the pressure of limited resources (e.g., time, money, expertise). Accidents emerge from a confluence of conditions and occurrences that are usually associated with the pursuit of success, but in this combination—each necessary but only jointly sufficient—able to trigger failure instead.

Every failure is the result of multiple things going wrong—often invisibly (Dekker refers to complex adaptive systems “drifting into failure”).189 Every postmortem should result in multiple ideas for incremental improvement. We must also schedule a follow-up to test whether these improvements were effective, ideally by running an exercise simulating a similar failure, as we describe in Chapter 14.

There Is No Talent Shortage

In the tech industry it’s common to hear about a “talent shortage” and the difficulty of finding “good people.”190 In this section we’ll dismantle the assumptions behind these kinds of remarks. We will examine what we mean by “good people” by looking at one particular role—software engineers—and then progress to the general case.

It’s a widely held belief that there is an order-of-magnitude difference between the best and the worst engineers.191 In reality, the 10x figure is (to put it mildly) “poorly supported by empirical evidence.”192 However, once you get to the bottom of the debate over the claim, it is really about the validity, or usefulness, of individual productivity measurements in the context of an organization.

Individual productivity is most commonly measured by throughput—the time it takes to complete a standardized task under controlled conditions. This approach is premised upon a Taylorist view of work where managers define the tasks to be done and workers try to complete these tasks as rapidly as possible. Thus, old-school metrics such as lines of code per day and number of hours worked are used to measure individual productivity of software engineers. The flaws in these measures are obvious if we consider the ideal outcomes: the fewest lines of code possible in order to solve a problem, and the creation of simplified, common processes and customer interactions that reduce complexity in IT systems. Our most productive people are those that find ingenious ways to avoid writing any code at all.

In many organizations, worrying unduly about variations between individuals is futile. If there’s one thing we should learn from the NUMMI case study in Chapter 1, it’s that organizational culture and leadership dwarf differences between individuals. As journalist and author Malcolm Gladwell writes, “The talent myth assumes that people make organizations smart. More often than not, it’s the other way around…Our lives are so obviously enriched by individual brilliance. Groups don’t write great novels, and a committee didn’t come up with the theory of relativity. But companies work by different rules. They don’t just create; they execute and compete and coordinate the efforts of many different people, and the organizations that are most successful at that task are the ones where the system is the star.” As W. Edwards Deming noted, “A bad system will beat a good person every single time.”

The rate at which we can understand and solve complex problems—the key skill for which we still need people, rather than machines—is determined as much by our environment as our own skills and abilities. We can hardly blame people for failing to learn and solve problems if we limit their opportunities by organizational silos that insulate workers from each other and from customers, by long cycle times that delay feedback, by focusing on completing assigned work rather than achieving customer outcomes, and by working long hours so we have no time to try out new ideas and technologies or even talk to each other!

Given that the culture of an organization has such a dominant effect on the performance of individuals, should we care at all about the particular skills and attitudes of individuals? Instead of taking a “bank account” view that focuses on people’s existing capabilities, it’s more important to consider their ability to acquire new skills—particularly in the field of technology where useful knowledge and skills change rapidly.

Carol Dweck, Professor of Psychology at Stanford, has spent years researching the psychology of learning, development, and motivation. Her research reveals there is a way to judge how good people will be at learning new skills. Dweck discovered that our ability to learn is determined by our beliefs concerning the question: is ability innate, or can it be learned? We can observe, based on people’s behavior, where they fall on a continuum between two extremes:193

In a fixed mindset, students believe their basic abilities, their intelligence, their talents are just fixed traits. They have a certain amount and that’s that, and then their goal becomes to look smart all the time and never look dumb. In a growth mindset, students understand that their talents and abilities can be developed through effort, good teaching, and persistence. They don’t necessarily think everyone’s the same or anyone can be Einstein, but they believe everyone can get smarter if they work at it.

Dweck showed through a series of experiments that our mindset determines how we decide our goals, how we react to failure, what are our beliefs about effort and strategies, and what is our attitude towards the success of others (Figure 11-3). Our mindset is particularly important in terms of our attitude to failure. People with a fixed mindset fear failure as they believe it makes their innate limitations visible to others, whereas those with a growth mindset are less risk averse by seeing failure as an opportunity to learn and develop new skills.

Figure 11-3. Dweck’s two mindsets, courtesy of Nigel Holmes

The good news is that we can change our beliefs, as shown by one of Dweck’s most interesting experiments.194 Dweck’s work shows that if we reward people for the effort they put into solving problems that they find challenging, it shifts them towards a growth mindset. If, in contrast, we praise and reward people for their ability to deploy their existing skills, we create a fixed mindset. This has important implications both for people managers and for HR departments, particularly in the context of performance reviews.

You can be sure that the behavior and attitudes of the people in your organization—your organization’s culture—affect the mindsets of the individuals within it, and thus their ability to learn. Thus, organizational culture determines not just the productivity and the performance of the people working in it, but also their ability to gain new skills, their attitude to failure and new challenges, and their goals. Setting people stretch goals that require them to learn new skills, while providing them with support, training, and slack time to reduce learning anxiety, and creating a culture in which collaboration is rewarded and failure leads to reflection and improvement rather than blame—all this works to instill a growth mindset in employees and must be a key goal of organizational change.

Dweck’s work tells us there are indeed “A-players” and “B-players.” A-players are simply people with a growth mindset who, upon joining a team, will try to discover how to make the team successful, working to acquire the necessary skills in the process. In contrast, people with a fixed mindset—the true B-players—are the biggest barrier to organizational change and continuous improvement. These are the kind of people who resist experimentation saying that others’ approaches “can’t work here.” They are also likely to hire people they perceive as worse than them so as to avoid challenges to their status and identity. While such people are capable of changing their mindset, they can also poison attempts to change culture, holding back high-performing teams. To reduce learning anxiety during change efforts, it must be widely publicized that support and resources will be available to help people acquire new skills, that no one will lose their job if they are willing to learn, and that those wishing to leave will receive a generous severance package.

Ultimately, the most important responsibility of an organization’s leaders is for its culture, demonstrated by the way they treat others. For example, Dweck argues that while Steve Jobs possessed a growth mindset when it came to his own abilities, he had a fixed mindset attitude towards others: “He wanted them to be perfect and they lived in fear of coming to him and getting his disapproval, instead of his approval.”195


Dweck’s work demands that we rethink recruiting. We should not hire people solely on the basis of the skills they already possess. This is particularly short-sighted in the software industry where technology, and thus the needed skills, change so rapidly. Neither should we be using brainteasers or test scores, which Laszlo Bock, senior vice president of people operations at Google,describes as “worthless as a criteria for hiring…They don’t predict anything.”196 Google has done a great deal of research into what makes for an effective recruiting process in the context of technology. The top three criteria are:197

§ Learning ability, including the ability to “process on the fly” and “pull together disparate bits of information.”

§ Leadership, “in particular emergent leadership as opposed to traditional leadership. Traditional leadership is, were you president of the chess club? Were you vice president of sales? How quickly did you get there? We don’t care. What we care about is, when faced with a problem and you’re a member of a team, do you, at the appropriate time, step in and lead. And just as critically, do you step back and stop leading, do you let someone else? Because what’s critical to be an effective leader in this environment is you have to be willing to relinquish power.”

§ Mindset. “Successful bright people rarely experience failure, and so they don’t learn how to learn from that failure…They, instead, commit the fundamental attribution error, which is if something good happens, it’s because I’m a genius. If something bad happens, it’s because someone’s an idiot or I didn’t get the resources or the market moved.”

Bock goes on to observe that the most successful people at Google “will have a fierce position. They’ll argue like hell. They’ll be zealots about their point of view. But then you say, here’s a new fact, and they’ll go, Oh, well, that changes things; you’re right.” This reflects the advice of Paul Saffo, Director of the Palo Alto Institute for the Future, who says that “to deal with an uncertain future and still move forward,” people should have “strong opinions, which are weakly held.”198

Google’s recruiting strategy is liberating because it enormously expands the pool of qualified applicants. Instead of looking for “purple squirrels” with precisely the skills and experience required for a job, we should look for people who can rapidly acquire the necessary skills and then invest in an environment that enables them to do so.

Growing Talent

The “talent shortage” problem is solved by creating an environment in which people can learn on the job, and hiring people with a growth mindset. Investing in employee development is one of the few opportunities enterprises have to create a competitive advantage over startups (the others being research and development, and the pursuit of optionality in Horizon 3, as described in Chapter 2). There are many ways in which enterprises can invest in people:

Help employees create and update personal development plans

To help employees take control of their own development and ensure that managers know how to help them, it’s essential that they, their managers, and people that give them feedback understand their career goals. Creating and regularly updating a simple personal development plan is the foundation of employee development.

Separate performance reviews from compensation reviews

The goal of performance reviews is to provide an opportunity for employees to get feedback on their progress towards their personal development goals, update their goals, and discuss them with their line manager. Coupling performance reviews with compensation reviews, and particularly the practice of “stack-ranking” employees, is based on outmoded ideas of extrinsic motivation which encourage employees to compete rather than cooperate with each other, and reduce employee engagement.

Facilitate regular feedback

Employees should share informal feedback on a regular basis to help each other move towards their personal goals. Good feedback is timely, designed for the benefit of the receiver, and given with permission. In a formal process (such as during a performance review, official reprimand, or exit interview), nobody should hear feedback that they have not already received informally.

Give employees access to training funds

Employees learn through different channels and should have easy access to funds that enable them to buy books, attend conferences and training, or engage in other activities that help them move towards their personal development goals. The conditions for spending should be as liberal as possible, within the limitations of applicable tax regulations.

Give employees time to pursue their own goals

Many innovative organizations reserve time for people to work on whatever they want. 3M has allowed employees to spend 15% of their time on their own projects since 1948. The Post-It Note is just one of the innovations created as a result of this initiative.199 In 2004 Founders’ IPO Letter, Google’s Sergey Brin and Larry Page write, “We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google. This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner. For example, AdSense for content and Google News were both prototyped in ‘20% time.’ Most risky projects fizzle, often teaching us something. Others succeed and become attractive businesses."200

Norman Bodek tells a story about Taiichi Ohno closing down a warehouse at a Toyota subsidiary: “Get rid of this warehouse and in one year I will come back and look! I want to see this warehouse made into a machine shop and I want to see everyone trained as machinists.”201 Bodek reports that Ohno’s orders were carried out, and within one year the warehouse had been replaced with a machine shop and the workers retrained. In line with the standard post-World War II Japanese corporate policy of providing people with jobs for life, Toyota expects to retrain people to do different types of work throughout their careers. Employees at Toyota understand that part of their job is to learn new skills. Toyota provides the necessary training and support for this, removing a great deal of the learning anxiety that is the most serious barrier to creating a learning organization and organizational change. Most importantly, when people are treated with respect and are given opportunities to pursue autonomy, mastery, and purpose, they become highly motivated to deliver value. Employee job satisfaction is the best predictor of organizational performance.

Eliminate Hidden Bias

Another major contributor to the “talent shortage” in technology is the large number of qualified people who decide not to enter the field or quit prematurely. Look at your technology teams and notice that women, in particular, are strongly underrepresented, as are non-white people in the US and the EU. Given that “biological sex differences in inherent aptitude for math and science are small or nonexistent,”202 and the same holds true for differences between races, what is the cause of this underrepresentation?

A number of studies done on recruitment processes aiming to hire on merit universally show that our implicit gender bias plays a strong role in rejecting suitably qualified women. In a study performed in 2012, researchers took 127 biology, chemistry, and physics professors from across the USA and gave them job application materials for an undergraduate science student applying for a job as a science laboratory manager. The materials were all identical, but were randomly assigned either a male or female name. Participants were asked to rate the student’s “competence and hire-ability, as well as the amount of salary and the amount of mentoring they would offer the student.”203 The results are reproduced in Figure 11-4. Perhaps most interestingly, both male and female professors demonstrated the same bias, showing that it is not intentional or explicit but rather “shaped by implicit or unintended biases, stemming from repeated exposure to pervasive cultural stereotypes that portray women as less competent.” Other studies have shown the same effects in different domains, as well as a similar effect with regard to race.204

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Figure 11-4. The effects of implicit gender bias on hiring

These implicit biases aren’t limited to recruitment or gender. Implicit bias and unequal access to resources act at every stage of our educational205 and professional lives, resulting in white male domination in science, technology, engineering, and mathematics (STEM) fields.206 A representative survey of 19,000 people carried out in the USA by the Level Playing Field Institute between 2001 and 2006 found that the annual cost to US businesses attributable to voluntary turnover of managers and professionals due solely to unfairness was $64 billion. Respondents cited the following behaviors: rudeness, having coworkers at a similar or higher level who are less educated or less experienced, others taking credit for your work, being given assignments that are usually considered below your job level, feeling excluded from the team, and being stereotyped.207

What can we do about this? Here is a selection of strategies that have proven useful.208 For further reading, consult Freada Kapor Klein’s Giving Notice: Why the Best and Brightest are Leaving the Workplace and How You Can Help them Stay:

Ensure equitable pay

It’s impossible to make exact comparisons between individuals, so instead examine salaries by role. Compare the average salary for white men within a particular role (such as UX analyst or senior engineer) with the average salary of people from underrepresented groups. Correct any discrepancies you find. Netflix’ annual compensation review process follows a simple rule: every employee’s salary is adjusted to “top of market” by ensuring they are paid “more than [any other company] likely would; as much as a replacement would cost; as much as we would pay to keep them if they had a higher offer for elsewhere.”209 If implemented comprehensively, this practice has the effect of redressing pay inequality for historically disadvantaged groups.

Create target conditions for recruitment and promotion

The Improvement Kata can and should be used as part of efforts to increase diversity. Target conditions for hiring and promotion of underrepresented groups are one example of an appropriate use of this tool. One large enterprise wanted to improve the number of women in senior management positions. To avoid accusations of positive discrimination, they didn’t create a quota for the positions, but they did impose a target condition for the proportion of women on the list of candidates (for example, “50% of the candidates for the post must be women”).210 A similar approach can be used for recruiting and team mix.

Monitor tenure, rate of advancement, and job satisfaction

Gather data on the average tenure of white men compared to people from underrepresented groups. Look to see how long it takes different groups to receive promotions. Find out what proportion of each underrepresented group has at least one other person reporting to them. Analyze your job satisfaction survey to reveal differences between demographics. Higher employee churn from underrepresented groups, longer time to promotion, and lower job satisfaction are clear indicators of (at best) an implicit bias within your organization.

Regularly review policies, interactions, and HR processes

Implicit bias doesn’t just play a role in recruiting—it pervades the corporate environment. To take just one example, women are much more likely to receive critical feedback in performance reviews (the word “abrasive” is almost exclusively used in feedback to women). Similar patterns are apparent in feedback to other underrepresented groups.211 It’s essential to create clear policies, have leaders publicly and regularly set expectations for acceptable behavior, and ensure they model appropriate behavior and are seen to take action in the event of inappropriate behavior. Hire an external expert to review interactions, policies, and HR processes, make recommendations, and return regularly to monitor implementation and review progress.


In a high-performance organization, employees enjoy and take pride in their daily work, and leaders and managers are dedicated to supporting employees in their pursuit of the organization’s purpose. No organization does this perfectly, and those that do best are constantly working to get better.

To create this kind of environment, we must address the behavior of everyone in the organization, starting with executives. As John Kotter observes, “a majority of employees, perhaps 75 percent of management overall, and virtually all of the top executives, need to believe that considerable change is absolutely essential.”212 The essence of a lean mindset is understanding that this should be the case not just in a crisis but all the time. Change, improvement, and development are habitual in a truly lean organization.

Changing culture is achieved by the deliberate, repeated, mindful practice of everyone in the organization. Leaders and managers must facilitate this by investing in employees’ development and creating conditions to support people working together to continuously improve processes, knowledge, and the value delivered to customers. Finally, it’s essential that leaders model the behaviors they expect the rest of the organization to adopt. Leaders whose actions contradict their words—particularly when their status is threatened or in times of stress—will lose the trust of their people.

Questions for readers:

§ Does your organization send out an anonymous survey (at least annually) to measure job satisfaction and other indicators of culture? Are aggregated results published to estimate progress towards targets for job satisfaction, diversity, and real cultural change? Are the results discussed and acted upon?

§ What happens when something goes wrong? Is there a systematic process to learn from accidents in order to improve the systems, or do managers focus on assigning blame?

§ What does your organization do to invest in the long-term growth of employees?

§ Does you company see culture change as continuous or event based? What practices could you start to move to a continuous model?

§ Does your organization hire those with particular skills and experience, or people with the capability and attitude to learn the relevant skills to help their team succeed?

§ Has your organization invested in reducing and eliminating the effects of systematic implicit biases? How are you measuring your progress?