What Economists Know That Managers Don’t (and Vice Versa)

Why did Jean Tirole win the Nobel Prize in Economics? Not for the highly-regarded work on competition between small numbers of firms with which his career began more than thirty years ago but for more recent work on how carefully structured regulation can improve performance relative to unbridled market forces. This is a reminder that serious students of market performance take market failures seriously.

But what many economists generally gloss over is a notion that I will argue is highly complementary to market failures: management failures. For policy-making purposes economists assume that all businesses act rationally in the pursuit of profits. The possibility that that might not be the case is generally ignored, or even when mentioned, quickly finessed. Read more

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What Makes Someone an Engaging Leader

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“How can we have the highest profitability in five years and still have gaps in employee engagement?” asks an executive at a large industrial products company. The reality is that the two don’t necessarily go together. This management team, like many others, has fought to increase profitability through business transformation, restructuring, and cost-cutting, without devoting much thought to keeping employees engaged and connected. As a result, the company may find it hard to sustain the gains, much less drive future growth. Organizational agility, innovation, and growth are really difficult without engaged employees.

The research team at AON Hewitt has made it a priority to understand what is going on in enterprises where both financial performance and employee engagement levels are soaring. Our ongoing study of the companies we’ve labeled Aon Hewitt Best Employers – firms that achieve both top quartile engagement levels and better business results than their peers – finds that they do have something in common. It’s the prevalence of a certain kind of leader, not just at the top, but throughout the ranks of the organization. These individuals – we call them engaging leaders – are distinguished by a certain set of characteristics.

What do these leaders of highly engaged teams have in common? Through extensive interviews we learned that they tend to have had early stretch experiences that shaped them; tend to share a set of beliefs about leading; and tend to exhibit certain behaviors that help to engage those around them.

Formative early experiences. Engaging leaders don’t just start out this way. “I started in the call center,” a CEO from a financial services business unit told us. “I know what it’s like and I still like to go sit with agents and listen.” We often heard in our interviews, as Warren Bennis and Bob Thomas did in their crucibles of leadership research, about early experiences that leaders felt had shaped them. They were not always of the unpleasant, mettle-testing sort; sometimes the person had a caring, attentive mentor; a stretch assignment that “chose the leader” instead of the leader’s choosing it; an assignment that required them to win over people who used to be their peers. The common thread is the reflection on the early experience that allows a leader to learn something, and gain self-confidence, humility, and empathy.

Guiding beliefs. Underneath an engaging leader’s behaviors are a powerful set of beliefs. They feel it is their responsibility to serve their followers, especially in times of crisis and change.  Many expressed core beliefs about the importance of personal connection. For example, a CEO of a beverage company, asked to name the most important responsibility of a leader, said it was “to create the emotional bond between our people and the organization.” Another CEO declared that “Leadership is a contact sport.” When we talked to a leader in an engineering department about why he thought he was regarded as an engaging leader, his thoughtfulness about human relationships came through. “People won’t remember what I did,” he said, “but they will remember how I made them feel.”

Engaging behaviors. We also noted a set of common behaviors, no doubt driven by the beliefs we’ve just been discussing, and clustering around five themes.  Engaging leaders step up, opting to proactively own solutions where others cannot or do not. They energize others, keeping people focused on purpose and vision with contagious positivity. They connect and stabilize groups by listening, staying calm, and unifying people. They serve and grow, by empowering, enabling, and developing others. And they stay grounded, remaining humble, open, candid, and authentic in their communication and behavior. These behaviors are continually validated in our leadership workshops, where we see people in action and hear about recent challenges they have worked to overcome.

These are the hallmarks, then, of engaging leaders – and almost every company has at least some of them. Few workforces, however, enjoy the general condition of having engaging leadership. That’s a systemic belief in the power of engagement that transcends the personal strengths and discretionary actions of individual managers. The organizations trying to make engaging leadership part of their culture are figuring out how to do four things on an ongoing basis:

  • Measure engagement levels. You can’t manage what you don’t measure. The CEO needs to own the engagement survey and follow-through. Enough said.
  • Develop engaging leaders. Workshops and coaching are required to help leaders reflect on their early experiences, find their own beliefs and purpose, and make engaging behaviors more habitual. When the number of engaging leaders amounts to a critical mass, their energy and mutual support can change the engagement culture of the organization.
  • Assess and select engaging leaders. Filling a lot of high-impact roles with engaging leaders should be the objective. Now that we have a good understanding of the experiences, beliefs, and behaviors that typify engaging leaders, it should be possible to use personality instruments, structured interviews, and 360 instruments to predict whether someone is likely to be engaging or not in a leadership role.
  • Measure and reward engagement achieved. Tying incentives to engagement survey scores is tricky and can lead to unintended consequences. However, we are seeing more organizations get serious about recognizing leaders who are engaging and holding those who are not accountable.

Engagement is a leadership responsibility – but by and large, with only , leaders are failing in this regard. Our research suggests that, for most companies, the turnaround won’t happen quickly. The fact that the most engaging leaders are the products of early experiences and deeply held beliefs means that new ones can’t be minted overnight. It will never be a matter of running through some behavioral checklist. But there are steps that employers can take to give more teams the benefit of engaging leadership – and, over time, to reach the levels of innovation, quality, and productivity that can only come from highly engaged people.


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The Internet-Connected Engine Will Change Trucking

It’s happened to all of us. You’re driving down the road and the “check engine” light appears on your dashboard. It could be something simple, like time for an oil change, or it could be something bigger. What do you do? Lose your car for a day while you take it to a service station? Keep on driving and hope for the best?

If you’re a commercial truck driver, the stakes are higher. An unplanned repair visit means losing a day of revenue, and potentially hurting your delivery schedule, for a condition that might be very minor. But if you decide to keep driving, you risk something far worse happening to your engine – and your livelihood.

This kind of uncertainty is a fact of life for many drivers. But Daimler Trucks North America (DTNA) is using the Internet of Things to resolve the uncertainty. DTNA is the largest heavy-duty truck manufacturer in North America, selling trucks under brands such as Freightliner, Western Star, Thomas Built, and Detroit Diesel through more than 1,300 dealers. In 2013, the company released a service called Virtual Technician to help existing drivers while also enabling new business models and revenue streams. According to CIO Dieter Haban, whose team identified the idea and led product development, “the innovation combines telematics, mobility, central mission control, big data analytics, and a seamless process from the truck to the driver, fleet manager, and ultimately to an authorized service outlet.”

DTNA’s engines continuously record performance data and send it to their Detroit Diesel Customer Support Center (CSC).  When a fault occurs, a team of CSC Technicians examine the data in real time and offer a recommendation. If it’s just a routine repair, technicians can help the driver schedule a service appointment for some convenient time and location. But if it’s a more severe condition, they might say “You need to bring your truck in for service right away. There’s a service station 75 miles down the road. When you get there, we’ll have a service bay open and all of the parts we need on hand. You should be in and out in two hours.”

This kind of service is more than just convenience. It brings certainty to a situation where uncertainty can drive tension into the driver/manufacturer relationship.  By capturing information that formerly was available only from an in-person diagnostic test, Daimler Trucks North America creates customer loyalty and reduces risk for commercial drivers.  It’s like driving a truck with a team of technicians on board.

Haban described the savings: “From the time a fault is realized, ordering parts, to getting the truck in the shop and repaired, we eliminated all wasteful steps.  This cuts down the time tremendously.”  But the savings go beyond efficiency. The service gives drivers confidence, and that’s important for a driver who operates alone, often hundreds of miles from home. Drivers are willing to pay for that certainty.

DTNA’s new service offers a number of important lessons for delivering IoT solutions, and digital transformation in general:

Look beyond the limits of the pre-digital age. Why is repair service so maddening? It’s because technicians can only diagnose and recommend services when your vehicle is actually in the shop. Daimler Trucks North America executives saw how IoT technology could fix this fundamental flaw in the design of the repair process, making the process smoother and more efficient for drivers and technicians alike.

Build and share a transformative vision. To the senior leadership team, this wasn’t just about telematics or new revenue. Putting a virtual technician on board each truck was just the start of a much broader process of changing the relationship between drivers or fleet operators and the company. DTNA leaders created this vision, communicated it widely inside the company, and then listened to ideas that could extend the vision.

Lead from the top. Digital transformation often crosses organizational silos, meeting many types of inertia and conflict along the way.  It takes strong top-down leadership — a combination of persuasion, incentives, mandates, and examples — to make this kind of change happen.  Virtual Technician touches many parts of DTNA, from IT to engineering to customer centers to dealers. Building the service required decisive leadership to invest in the innovation, negotiate across boundaries, address issues, and engage hundreds of people in making the vision real.

Ensure that you have a strong digital platform. DTNA executives had to build a platform that connected engines on the road, engineers and technicians in the control center, and systems in the dealers into a unified process. Failing to connect a link in the chain would lead to service failures and unwanted delays. For example, if dealer service systems were not part of the solution, a driver might arrive for service only to have to wait for a bay to open, or for parts to arrive.  Building a platform that spans different organizational units, and even beyond the boundaries of DTNA, is challenging, but it is the foundation for everything else.

Foster close collaboration between IT and business leaders. In Daimler Trucks North America, the CIO is responsible for innovation, not just for IT. Business and IT leaders work closely together to identify and implement ideas. According to Haban, digital transformation is “a joint effort of IT and business. Nobody says ‘I’m the digital guy.’” This is important; neither IT nor business can do it alone.

Stay attuned to new possibilities.  The Virtual Technician capability is becoming the centerpiece for new service offerings. For example, fleet managers are willing to pay for a service that lets them know, in real-time, where every truck is, how well it’s working, and when it will next need repairs. The data can also help DTNA understand how to improve its engines, help customers choose the right equipment configurations, or optimize inventory management. And management is paying attention to many other opportunities.

Looking forward:

To date, more than 100,000 trucks have activated the Virtual Technician service. More than 85% of users have already received a notification of needed services, and 98% were satisfied with the notification process. Customers report higher satisfaction and higher uptime on their vehicles equipped with Virtual Technician.

DTNA’s new capabilities make many other services possible for the company and its corporate family. Daimler could offer these services to commercial drivers and fleet managers in other parts of the world. It could extend its engine-focused service to other parts of the truck, like wheels or suspensions. And who knows — Mercedes drivers may someday get the same type of service for their passenger cars.

The internet of things is enabling new possibilities for digital transformation in every industry. It is creating new opportunities that were only dreams a decade ago. Take a look at your business.  What can you do that you couldn’t do before? Start to do it now, before someone else does.


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