Conversation 4: Efficiency and Effectiveness

We discussed that (P)roviding for the satisfaction of present clients’ needs will make the organization effective in the short term. Performing the (P) role is a necessary component of a good decision. And making good decisions is half of managing well.

Why do we have to make decisions?

Because there are problems, and there are problems because there is change.

What about efficiency?

Efficiency means that you spent the minimum energy necessary to get something done. The shortest route between two points is a straight line. That is efficient. You do not go around and around to get to the point.

INSERTAR DIAGRAMA

An efficient machine uses less energy than an inefficient machine. This applies not only to machines; an organic system like our body is extremely efficient—ask a medical doctor.

For efficiency you need to systematize the organization. You need to organize and establish policies, standard operating procedures, and rules; you must have law and order and disci- pline. The right things must be done at the right time, at the right intensity, and in the right sequence. You must do things right, rather than just doing the right things. Instead of rein- venting the wheel every time you need to wheel something around, you design the best way to produce wheels by making the process routine.

Back to the tennis analogy, hitting the ball over the net into the opponent’s court proves that your hit of the ball was effective. However, in order to be efficient, what do you have to do? You must systematize your volley. You have to learn how to hold your racket and move your body correctly. The coach trains you by sending you the ball in the same direction over and over again. This helps you develop the correct movement and swing, so that you will hit the ball with maximum impact and minimum expenditure of energy.

Systematization makes you efficient. It requires attention to detail, thoroughness, and a good memory. It requires not that you work harder, but that you are more disciplined.

Doing all of this is the role of (A)dministration.

That makes sense. A decision should produce effectiveness and efficiency.

Right, now can a system be effective and not efficient?

Come to think of it, yes, it can. A decision may satisfy a need, but at higher utilization of resources than is necessary.

Right. Let us look at a game of tennis. In order to win you first have to hit the ball over the net into the opponent’s court. That is, you have an effective volley. But you can do it very ineffi- ciently: You turned your body too much, or you moved your body the wrong way.

To be efficient you train. You train how to swing the racket, how to hit the ball correctly, and you practice and practice and practice. In your practice, you made the perfect moves but missed the ball. Can it happen?

You were efficient but not effective.

This can happen not only in practice but also in real life. Imagine someone saying to his opponent, “Send me the ball exactly here, to this specific spot, because I am most efficient when I swing the racket here. I know best how to hit the ball from here. Do not send it anywhere else.”

Who makes this mistake?

Bureaucracies. They go through the motions dictated by their manuals and policies. They are most efficient in what they do, but they miss satisfying client needs, because those needs might have changed since the system was established. They hit the balls that come to the racket rather than bringing the racket to the ball. They serve only those needs that fit their procedures rather than adapt the procedures to satisfy the needs of their clients. That is why “bureaucracy” is a derogatory label.

The Inevitability of Bureaucracy

Now let me ask you a question: How quickly do you think the location of the ball changes during a tennis game?

The more change the more bureaucracy there will be.

Very quickly. It changes location often.

How long does it take to practice and learn how to hit that ball efficiently?

A long time.

In the modern world, market needs change faster than the capability of the company to deliver satisfaction in an efficient way. The needs of clients change faster than the system adapts to satisfy those needs. The system required to satisfy a need changes slowly, while the needs evolve quickly. The result: bureaucracy. Needs are not satisfied.

Bureaucracy is partially caused by change. The more change the more bureaucracy there will be. I can see that.

Right. So you have to choose what is more important: to be effective or to be efficient; to be approximately right or to be precisely wrong. Do you want to hit the ball into the opponents’ court, although not in the ideal location, or hit it right into the net?

Obviously, effectiveness is more important.

In order to be more effective you might have to be less efficient. Efficiency can be detrimental to effectiveness. It is better to be approximately right than precisely wrong.

When a company is young, it’s often effective but not very efficient. It chases the market to survive. Its systems are still in the cradle, developing. As it grows older, it becomes more efficient but less effective. It has systems galore, but those systems change slowly; without change the company responds less and less to the changing needs of the market, which makes it ineffective.

Yes! To be in the Prime of your organizational lifecycle is to be both effective and efficient, and that takes effort and a lot of organizational learning. It is not automatically forthcoming.

But, if efficiency is up, then profits are up, and is that not what we want in the business world?

Profits should be a measurement of added value. Cutting costs does not add value per se, even if it increases profits.

When you generate profits exclusively through efficiency, profits will go up only by cutting costs. As you continually shrink costs, however, what else might go down? If you cut costs to the point that you can’t sat- isfy your clients’ needs well, effectiveness will drop and sales will decline.

So?

There is a lag between the time when the clients’ needs are not satisfied and when clients find another business to patronize. It takes time to build their satisfaction (sales), and it takes time to lose their loyalty. Now, you can cut expenses faster than clients can move to another supplier. That means that sales decrease more slowly than the cuts in expenses. This time lag, between when you cut costs and when you see sales decline, can make your company look profitable in the short term, while it is actually going bankrupt in the long term. You will be profitable in the short term, but eventually the deterioration in your sales will catch up. You’ll have no clients left with which to do business.

Profits should be a measurement of added value. Cutting costs does not add value per se, even if it increases profits.

You say profits should measure the added value. Can you elaborate, please?

Needs have a price: A client is willing to pay a certain amount of money to satisfy his need. The value of the need is equal to the price paid (in a free, competitive market).

Transform your organization's culture to foster collaboration, engagement, and high-performance teams.

However, there is a cost to satisfying that need. If you can satisfy that need at a cost that is lower than the price the client is willing to pay, you make a profit. So, profit is a measurement of added value: you are able to satisfy a need at a lower cost than the perceived value of that need.

You should maximize client satisfaction but avoid losing profits. This means satisfying needs within the limits of profitability, rather than maximizing profitability and compromising client satisfaction. Profits are thus a limit, not a goal. In other words, client satisfaction is a deterministic goal, a goal you want to maximize; profit is a constraint goal, a goal you do not want to violate.

What about non-profit organizations? Like NGOs? They are not profit motivated. So what is their value added?

Any organization should satisfy client needs with the least energy waste. In the case of non-profit organizations, the result will not be profit. If it is a political party, it will be getting reelected. For a philanthropic organization, it will be fi- nancial efficiency and the fulfillment of its mission to the best of its capabilities.

Profits are thus a limit. Not a goal.

Consider a hospital: Depending on the type of hospital, the method of measuring value added will necessarily be different. For a teaching hospital, added value can be measured by the number of medical doctors it is able to train, while maintaining economic viability. For a research hospital, it can be measured by the contributions the staff has made to professional journals. If it is a service hospital you would look at the quality of medical ser- vice provided and whether there is any waste. You would not focus on minimizing expense at the cost of having lower quality medical service, right?

The focus of the non-profit should be first on its function in society, and then on the value it creates by minimizing the cost of satisfying that function or need. The non-profit, like a for-profit organization, must identify the client and the client’s needs. They can then measure their effectiveness by repeat demand for their services and ask themselves: Am I providing these services most efficiently, with the minimum amount of energy needed?

The “cost” of satisfying a need is not only money. It can be any other manifestation of energy or time. For example, how long is a client willing to wait in line to have their needs satisfied? How long is a client in a jungle willing to walk to the nearest hospital?

I do not consider managing a non-profit different from managing a business or a country. All should focus on client needs and satisfy them with minimum wasted energy.

I understand. We need to be both effective and efficient.

We can add it now to the diagram:

DIAGRAMA

Now, tell me what we need for long-term effectiveness? I understand that in order to be effective and efficient in the short term, I need to (P)erform a needed service and (A)dminister it. Now how about effectiveness in the long term?

Long-Term Effectiveness

Long-term effectiveness means that present decisions will satisfy future client needs.

What we want are decisions that produce effectiveness in the long term, decisions that can predict and satisfy new needs we believe will emerge. We want the organization to make proactive decisions.

Give me an example.

Let’s assume you need to build a factory today, that will produce gadgets you predict will be needed next year. When next year arrives, your prediction proves to be true and there is a demand for the gadgets. Your decision to build a factory today makes you effective tomorrow.

You mean I have to adapt my organization to the market changes.

No. To adapt is reactive, you wait until something happens and then adapt.

What is wrong with that?

Every day some bird or flower becomes extinct as our environment changes. Do you believe that they do not want to survive?

They try to adapt. So what is wrong?

Their speed of adaptation is too slow in comparison to the speed of the changes in their environment.

How about the human race?

The human body can change at a certain speed. However, adapting may have worked a hundred, two hundred years ago when change was slow. The world is different now. Change is accelerating and neither the birds, nor plants, nor the human species is capable of adapting at that speed. You need to be proactive, to predict change and prepare for change, then you have a chance.

How can I be proactive?

Let’s go back to the tennis analogy. As you hit the ball, what else do you have to do? You must think about where your opponent’s next shot will land. You may have to run to the net, to the middle of the court, or to the baseline in order to meet that next ball. This process of positioning yourself now for future demands is called being proactive.

A proactive approach will make you effective in the long term. If you’re in the right place when the next ball arrives, you will be ready to hit it again. So, to be proactive means to do something today to position yourself for the future.

I’m not talking about marketing or merchandising. I’m talking about positioning yourself to meet future needs. Are you getting ready with a new product? Are you getting ready with new distribution channels? Are you equipping yourself with a new technology, so that you’ll be able to satisfy the needs you predict?

You mean I should plan?

Yes. Planning is not deciding what we will be doing tomorrow. That is dreaming. Planning is what are we going to do now, this year, to prepare for what we believe and expect to happen next year.

The mind is like a computer. Or, more specifically, we built the computer to mimic the mind. The computer takes orders literally. You cannot put in one command and expect something else to happen. Our mind works the same way.

If you say to yourself, “tomorrow I will start a diet,” tomorrow, when you wake up, your mind asks you: Is today tomorrow? Since it is not, you will not start the diet. You will never diet. It is always going to start tomorrow.

Interesting you say that. There is a bar in Amsterdam that has a big sign on the wall: “Free drinks tomorrow.” They have never served a single free drink. When, in Mexico, they say mañana (tomorrow) it means, “forget it, it won’t happen.”

You have to act today to prepare for tomorrow. Create your tomorrow today. Create your future now.

The people who adapt to a changing environment are the ones who wait until the ball lands in the court. Once they know where it has landed, they adapt, or they react to it. But by then it might be too late. The world is changing too fast. Organizations, just like the earth’s flora and fauna, will not survive if they cannot adapt quickly enough to the changes in the environment in which they operate. By environment I mean the market, the competition, the technology, the political and legal environment, the physical environment (air, water, natural resources), social environment, etc.

Create your tomorrow today. Create your future now.

Change fast or die slowly, right?

An organization needs to change faster than the environment in which it operates. It needs to be able to imagine what the future will look like. It has to build scenarios of future client needs, the competition, the environment, and anything else that might affect the organization. It has to be creative and imagine what is going to happen.

What do you mean by “creative?”

The future is foggy. Not all information is available or clear. You may not have all the infor- mation, and the validity of what you do have changes with time. Indistinct visions appear and then disappear. You have to assemble the available information and then fill in the gaps in the emerging pattern by using your imagination. That’s creativity: filling in informational gaps to create a whole picture.

But to be proactive takes more than being creative. After you predict where the next ball is going to land, what is the second thing you must do?

You have to actually make your move on the court.

Yes, you must move to a spot on the court where you believe the next ball will land and position yourself for it. But since the ball may not land where you predicted, you must be willing to take a risk.

DIAGRAMA

You mean one has to be an entrepreneur.

No. Here we are talking about the (E)ntrepreneurial role. To be an entrepreneur you need more than just the (E) role. You need to be (PaEi).

An entrepreneur needs to be more than just creative. She must be result oriented and (P) oriented too, if she is going to succeed. With (E) alone a person is a dreamer, a creative con- tributor, and that is it.

Some people are creative but do not take risks. They’re not (E)ntrepreneurial or proactive. Usually you find such people in the consulting or business teaching professions. They’re creative, they can imagine the future, but they are unwilling to take the risk and act upon what they imagine.

The ideal balance for the (E) role in a leader is both the ability to imagine the future and the willingness to take risks in order to position the organization to deal with that future.

If you are proactive you will be effective in the long term?

There is a better chance than if you are not proactive. As the expected needs arise you will be ready to respond.

DIAGRAMA

This is the most difficult role to explain. A person who is creative and thus capable of imagining the future and willing to take risks is entrepreneurial. This is the third role of (E). To satisfy present client needs is to be effective in the short term. To prepare to satisfy future clients and future needs prepares you to be effective in the long term.

I repeat: To be effective in the short term you need to be dedicated to the task. You need to be achievement motivated. For the long term, since you have to look at the future and analyze the hypothetical future needs of present and future clients, you have to be creative enough to imagine that future. You have to be willing to take risks, because you have to start preparing today to be ready for the future, although what you project may not happen.

What then is the fourth role: How to become efficient in the long term?

Long-Term Efficiency

In order to be efficient in the long term, one must (I)ntegrate, as summarized below.

You (I)ntegrate, for instance, when you teach people to play team sports. All the participants share emotionally, socially, and sometimes economically from winning. It is not a star system, but an ensemble. When building a team, you build the teammates’ support for each other so they will benefit or lose as a team rather than as individuals.

How do you do that?

To (I)ntegrate: Is to change organizational culture from mechanistic to organic.

Let’s explain the terms in our definition above.

“To change” is an important term, because it means that the change we want to have in order to integrate is active. We cannot be passive and expect integration will happen by itself. The opposite is true, as time is destructive by nature. Take a beautiful garden, for example. You could spend thousands of dollars to build one, but if you then do nothing—do not touch that garden for two years—what will happen? It will be like a jungle, with weeds all over. Same with the best car you can buy: do not drive it, and a year later it probably won’t start. Time by itself is destructive.

Marriage too is like a garden, like a top-notch car, like any system. It needs continuous main- tenance or it will fall apart. A friend of mine’s wife asked him for a divorce. He was surprised: “I did not do anything.” You have to work to maintain your marriage.

One day I was planning with a client when we would meet again. I suggested March 15. “Oh no,” he said. “I am on my honeymoon then.” I was shocked. How could it be? Just the evening before, I had dinner with him and his wife. How did he find the time to divorce his wife and remarry all in one short night? He saw my surprise: “No, no. It is with my wife. We have a rule in our marriage: On the anniversary of our wedding we go on a honeymoon every year, because one honeymoon is not enough for a lifetime of a marriage.”

All systems need maintenance. Why not organizations? This is why I start the definition of (I)ntegration with to change. It means to do something differently today so that tomorrow is different from yesterday.

The next word is organizational. This requires a more detailed explanation. What does the word organization mean? If I were to ask you how many people are in your organization, where would you look for the answer?

I would look in the personnel files of the organization.

As a manager, in order to find out who the people in your organization are, that you’re sup- posed to (I)ntegrate, motivate, and manage, don’t look at your organization chart or person- nel files. Look for “the rock.”

The rock?

Let me illustrate what I mean through an analogy. Five friends get together Friday night and have some beers. As they are drinking, someone suggests they go on a hike to the nearest lake the next morning. The rest of the group enthusiastically agrees. The next day, they walk up a very narrow mountain path on their way to the lake. It is so narrow they must walk single file. As they are walking, they’re whistling, joking, laughing, and maybe even arguing with each other. For organizational psychologists or sociologists, this is an organization, because they are connected by interrelationships. For those interested in management and leadership, there is no organization until the group arrives at a point on this narrow path where a rock is blocking their passage. The rock is so big that none of them alone can lift it. What does the group have to do now?

Move that rock.

Since no one alone can lift it, they have to interrelate for an immediate purpose, to move the rock. The managerial process and the organization, by extension, were not born when they decided to go for a hike to the lake. Drinking beer satisfied the (I) need. Deciding to go to the lake was the (E) role. Now that they need to remove the rock to be able to reach their goal—that represents the (P) role. Now organization, or the (A) role, is needed: They need to get organized because none of them alone can lift the rock.

A commercial organization is born when no single individual can satisfy the needs of the market. If the needs of the market could be satisfied by an individual, there would be no need for an organization. The same applies to noncommercial entities, whether a family, an NGO, a state, or a global society.

The purpose of any organization is to satisfy its clients’ needs that cannot be satisfied by an individual alone.

When an organization is very young, the purpose is clearly visible, because a young organization cannot ignore its clients. If it does, it goes bankrupt. The company wants the clients’ repeat business, or else it may not have the cash to pay salaries.

As organizations grow older, they focus more and more on the score, on profits, and on measurable output. They forget who the clients are and what needs they must satisfy. They start to focus exclusively on profits. At that point many companies go bankrupt, not in spite of their focus on profits, but because they were focusing exclusively on profits.

Why do organizations lose their sight? It’s like what happens to vision as people age.

That is the subject of another book of mine, Managing Corporate Lifecycles. You can learn more there if you’re interested.

Back to our analogy, imagine that our group of friends cannot lift that rock by themselves and they still want to go to the lake. They see another group of people coming up the path. Our group does not know them, but they need their help to lift the rock. They need them to get to the lake. They need to integrate them into their effort to push and lift that rock.

Are those people in the new group members of the organization? Sure they are, because the original group needs them to fulfill the task on hand, they need them to reach the goal.

Members of your organization are not just those who report to you or who are on the payroll. In order to reach your goal, to move your rock, you have to change the culture of all of those whose help you need in doing so.

You mean to say that I need to coordinate, plan for, organize, and reward not just those who directly report to me, but all those I need in order to dispense my responsibility as a manger, as a leader?

Yes. A manager who says “I can do only what is possible with the people reporting to me; and if I do not have all the people I need to do my job, I should not be expected to be responsible for it,” is a bad leader. He does not lift rocks, he lifts pebbles.

There is no leader, manager, administrator, executive, prime minister, or even parent, who has all the people they need for their job reporting to them. A parent is responsible for raising his or her kids. But teachers do not report to parents. Nor does a sports coach. Certainly, the group of kids down the street, with which a child might socialize, does not report to his parents. Yet all of them impact the raising of a child. They are like surrogate parents.

I have never met a manager who claimed, “All the people I need to carry out my responsibilities report to me.” Never! The managers I know always claim the opposite. Their usual complaint is that they have difficulty carrying out their responsibilities because people critical to the tasks do not report to them. Sam Armacost, who was president of Bank of America, had the best response to this situation: “You don’t need to own a highway in order to drive on it. You need only a token to get on it.” You need the capability to be a team player.

But surely the presidents of companies have everyone they need reporting to them.

Do they? The unions do not report to the company president. Neither do the bankers, the stockholders, the clients, or the competitors. From the perspective of those at the bottom, it looks as if presidents have everything under control, but they often only act that way to demonstrate authority. Upon closer inspection, one might find that they are lonely at the top and frequently feel powerless to carry out their responsibility.

How about the president of a country?

She is the least powerful of them all, because she has even more people to mobilize, and their “rock” is not a rock, but a mountain.

You are the most powerful when you work alone. But then there is no organization and you are not lifting a rock. You are not managing an organization. You are just managing yourself. (By the way it is not as simple there either. You have all kinds of voices in your head you need to calm down and make cooperate. You are not that “alone” either.)

I guess we’re all lonely and vulnerable, yet some leaders will not admit it.

If they did, they would scare their constituents. People expect their leaders to be like their parents: strong, knowledgeable, providing security, making them feel safe. If a leader admits that he is not that powerful, it scares people. That is what happened with US President Jimmy Carter, who made a speech about America’s crisis of confidence. He lost much of the respect of the nation and is still considered one of the weakest presidents the country has ever had.

It is even more critical in countries that have a tradition of being managed dictatorially. Take Russia, for instance. President Vladimir Putin must act dictatorially, because the people expect him to. If he behaved like Prime Minister Dmitry Medvedev, who is more open, people would consider him weak. The country would feel rudderless. It would be like anarchy.

Then where should I, as a leader, look to find the organization I am supposed to manage?

Start by looking at the clients for whom the organization exists. That means being conscious of your responsibility to others. No one exists solely for himself.

I know people who are totally self-centered and couldn’t care less about anyone else.

The moment you exist exclusively for yourself, you become a cancer. Cancerous cells use energy for non-functional purposes. They serve nothing and no one but themselves. Some people are cancerous entities in an organization, and some organizations are cancerous entities in a society. The world is created so that everything exists to support something else in a functioning totality, which then functions to serve its components. That is the ecological balance we are all so preoccupied with nowadays.

Starting any organization, society, or community means being conscious of this interde- pendence. It is this spiritual consciousness of who am I, which is always answered with for whom and for what am I. We could modify Descartes’ statement, “I think, therefore I am,” to “I serve, therefore I am.”

Rabbi Abraham Heschel said, “If I am not for myself, who will be for me? And if I am only for myself, then who am I?”

There is no healthy organization without a sense of common destiny linking it to a larger scheme. There must be a consciousness of interdependence, whether the organization is a nation, a business, a marriage, or an individual.

After you identify for whom the organization exists (the clients), you should identify the people whose cooperation you need in order to satisfy the needs of those clients.

Let’s go back to the group of friends who are trying to move the rock blocking their path. Assume that in order to remove the rock, to reach the lake for canoeing, you need the assistance of park ranger who does not organizationally report to you. Maybe, as already stated, you need other hikers to help lift the rock. And since you need the whole group in order to achieve your goal, the other hikers and park rangers are all members of your organization, who need to be coordinated, motivated, and, in a word, managed.

But why would they do it? The ranger gets paid to help. But what about the other hikers?

Because there is a common goal: The other hikers want to get to the lake too, or at least beyond the spot the rock is blocking. Or they are people who “help forward,” they help you in the hope that someone will help them in the future. We all help each other. We are a community.

It is your job to find what their needs are, why they would cooperate, and satisfy those needs so that the rock can be moved.

It is not always clear to everyone where the common good lies. It is your role as a leader, manager, or parent to identify the common goal, the common good, and mobilize the people around it. Moreover, you should reward them for cooperating. Or, even better, you should be sure there is a reason for them to cooperate. There should be a reason that reinforces cooperation.

What could that be?

Look at the metaphorical rock you are responsible for lifting. Some of the people you need to help you lift the rock work for you directly. They’re on your payroll. They’re the employees on your organizational chart. Some people necessary to lift the rock do not work directly for you. They are in other departments. Maybe they’re your peers. Maybe they’re your superiors. Maybe they’re even outside the organization. The people you are supposed to manage or lead are all those people you need to lift the rock (or perhaps find a way to bypass the rock— either way you still need them to get to the lake). All of them need to get satisfaction from moving that rock. Otherwise, why would they cooperate?

You should feel responsible for serving a totality in order for that totality to serve you.

Some people do it for the money. Some do it because they like lifting rocks. Some do it because of the camaraderie of jointly lifting the rock. Some do it because they want to get to the lake too.

The weakest motivation is of those who do it for the money. The strongest motivation is when people do it simply because they want to help.

When determining whom you should include in your “organization,” look beyond the rock, even beyond the lake. How far you look, and thus whom you need to integrate, depends on your consciousness. The organization, to which and for which you feel responsible, might include not only those people needed to move the rock. If you raise your eyes higher, you will realize that the rock is irrelevant and so is the lake. What integrates us changes over time. Today it is the rock, but getting to the lake, as a goal, might change. What is constant is the human race, the needs of which change, whether they are to move a rock or reach a lake. Feel responsible for the human race, for our civilization, but do not stop there. If you continue looking up, you will realize that the world we occupy is inhabited not just by the human race, but also by plants, animals, rocks, practically everything that surrounds us. You should feel responsible for serving a totality in order for that totality to serve you.

This discussion reminds me of a story: Three people are laying bricks. If you ask the first person what he is doing he might answer, “I’m laying bricks.” The second person might respond, “I’m building a wall.” The third person might answer, “I am building a temple where we are going to worship the Lord together.”

Only the third person understands the purpose of the whole enterprise and recognizes the benefits to be shared from each person’s function. Through prayer, in whichever form it is done, a person becomes (I)ntegrated with the Lord. That (I)ntegration, in order to be fully realized, has to be within oneself, between oneself and others, and outside of the immediate circle into the larger scheme to which one belongs.

We become aware of God when we become conscious that everything and everyone belongs to one large, interrelated system. When we become conscious of that, we realize we are one, although we have different forms, shapes, and textures. The differences are necessary for the functioning of the whole. Through our differences we serve each other in a totality. That totality has consciousness too, a total, absolute, and everlasting one. That is God to me.

How do I operationally do this—tomorrow morning?

Look at the (PAEI) codes. Start by asking, who are my clients? For whom do I exist? This is the first group of people or entities, depending on your consciousness, that you need to identify. Next, identify the present needs of those clients and what you need to do to satisfy their needs. That is the (P) role. The next question on which you should focus is, how do you go about doing it with minimum waste?

That is the (A) role?

You love because you are.

You should also ask yourself what the future needs of your present and future clients will be. That is the (E) role. Then determine whom you need in order to satisfy your clients’ present and future needs? Do you also need rangers, other hikers, and so on? That’s the organization that you need to integrate and you need to make it worthwhile for them to cooperate. That is your (I) role.

Ask yourself what the people needed for lifting the rock or arriving at the lake want from the organization. What is in it for them if they cooperate? To some, the organization pays a salary. To others, it pays no salary, but someone has to take them to dinner and massage their egos. Others are paid commissions. Getting “paid” is different for different people and it needs to be ethical and legal. Your job is to find out how the organization should reward them, so that they cooperate to satisfy the needs of your clients.

The strongest motivation is when you cooperate because of who you are as a human being. You need no reward. You ask for none. You lift the rock because you are a cooperative person. Period. You love people without a hidden agenda, without asking for a reward. You love because you are.

The Stakeholders

The people you need to lead, manage, and integrate, in order to satisfy your clients’ needs are called stakeholders.

They should be paid a salary or rewarded in some other way. Like clients, stakeholders have self-interest too. Employees, salaried or otherwise, and stockholders, for instance, are stakeholders. Both groups have something at stake: The satisfaction of their needs should be based upon how the organization performs.

What about management?

They also have needs. That’s why they are in the organization. They’re stakeholders as well. Be sure their needs and rewards mirror the needs and rewards of the organization. Sometimes they do not. During the financial crisis in the US at of the beginning of the twenty-first century, management took millions of dollars in bonuses, while the banks they worked for were going bankrupt, employees were being fired, and shareholders were losing their shirts.

What about the community in which the organization is located? Does it have something at stake?

The community is a stakeholder too. You must make all stakeholders realize that if they co- operate, their needs will be satisfied. You have to create a win-win climate in which money and salary are not the only means of exchange, and you have to synchronize the satisfaction of the needs of the clients with satisfying the needs of the stakeholders.

A leader is like a transformer in between two patterns of needs: on one hand are client needs that have to be satisfied; on the other hand are the stakeholders whose cooperation he needs in order to satisfy client needs. He must satisfy all their needs.

You are in between two pressure groups: needs of clients and needs of collaborators, the stakeholders. You are in the middle, juggling. Sometimes you cannot satisfy all clients’ needs because you do not have the capability to satisfy all the needs of the collaborators you need. You have to align the needs of the two groups.

Try to maximize client/customer satisfaction. Make them want to come back again and again—that is your deterministic goal—with only reasonable profits necessary for giving a competitive return on investment to investors, to stockholders, and whatever else needed for the other stakeholders. You should give competitive income to the employees. They are another group of stakeholders.

But never, ever lose your focus. The focus should always be on the clients, not on the stockholders. Customer satisfaction is the goal. Profits are the constraint.

Mechanistic vs. Organic Consciousness

What about the words mechanistic and organic? You used them in your definition of (I)ntegration. What do they mean?

Imagine a chair with four legs standing in the middle of the room. Why is it called a chair? Why don’t we call it a cow?

Well, if you could milk it, you could call it a cow.

You are what you do, and what you do has functional meaning through the needs you satisfy.

Yes! For the purposes of our discussion, we can say that something is what it does, what needs it satisfies, what it is designed to do. If it does not perform the function, then it is not the object. If you tell me the function, I can tell you the name of the object. If you have a piano that is not be- ing played, it’s not a piano. It’s a piece of furniture. If you have a chair you cannot sit on, it is not a chair. It could be an art piece by the Memphis Group, and the owner would be upset if you sat on it. If I show you a hammer and ask what it is, you should know enough from what I have said so far to answer me.

Easy: I don’t know what it is until you tell me what you do with it. If you pound nails with it, then it’s a hammer. If you use it to harm someone, it’s a weapon. If you collect different types of hammers from around the world to hang in your garage, then it’s a decoration.

We don’t know what something is until we know its function, what need it satisfies. You cannot say you are a father if you have never done anything to satisfy your child’s needs. You might be a biological father, but if you’re not fulfilling the child’s social, economic, and emotional needs, you’re not a parenting father. You are what you do, and what you do has functional meaning through the needs you satisfy.

Now, back to the chair: It’s a chair because we can sit on it. It fulfills the function of providing a place to sit. The (P) function has been satisfied. What about the (A) role? How would you check that?

I’d look to see if there is anything unnecessary. Wasteful. Is it easy to produce? Is it easy to clean?

How about the (E) role?

I’d look to see if it satisfies other needs, future needs, beyond sitting. Like if it is aesthetically pleasing, if it fits the color scheme of the other furniture, etc.

Now about the (I) role. What would happen if the right forward leg broke down?

We no longer have a functioning chair. We have a broken chair. We cannot sit on it.

The question is, why doesn’t the left forward leg move to the center of the chair, creating a tripod, so that the chair can continue to function as a sitting device? The answer is obvious: The chair is like a machine. There is no internal interdependence between the parts. It is as if the left leg says, “I am okay. The problem is with the right leg. I am not broken.”

I can see that. It happens in some organizations. The company is losing sales. The people in the production department say it is a sales problem, not their problem.

Yes, in managerial lingo, this is called a silo mentality.

In order for the chair to fulfill its role, someone from the outside has to fix it. This chair is dependent on external intervention to function. There is no internal interdependence between the parts of a chair. A multimillion-dollar spaceship can explode in flight and kill seven people because an O-ring does not function. No other part can take the place of that O-ring. This is called mechanistic consciousness.

Now let’s look at organic consciousness. Look at your hand. It’s a hand because you can grasp objects, it functions as a hand. What would happen if you broke or lost one of the fin- gers? Would you still have a hand?

Yes. It wouldn’t be as good, but I would still have a hand.

Why?

Because the other four fingers would compensate. The hand would continue to function.

Exactly. What makes a hand a hand is not just the physical attributes of the five fingers. It’s that each of the five fingers “thinks” like a hand. If each leg on the chair thought, I’m a leg and part of a chair, then each leg would support the function of satisfying the need to sit. The chair would have an organic instead of a mechanistic consciousness.

Let’s look at humans. Why do our legs run when our eyes see danger? It is as if, through organic consciousness, all our body parts recognize the benefits and liabilities of their in- terdependence, and work to protect the whole. In a mechanistic consciousness each part is “conscious” only of itself. There is no internal sense of interdependence.

In an organization with a mechanistic consciousness, production people worry only about production and sales people worry only about sales. And who worries about whether the totality functions? Outsiders have to worry about the totality and have to intervene because none of the individuals involved worry about it. That intervention is often undertaken by management. In such an organization, employees view and oppose management as if they were outsiders.

An extreme case is when management also worries only about its own interests and not about the totality it manages. In that case, the external intervention is provided by consultants, by the government, or by no one, in which case the organization dis(I)ntegrates and might go bankrupt.

This disintegration does not happen only in business organizations. It can happen in a country where those in a leadership position take care of themselves and not the country. They are corrupt. In essence no one takes care of the country—it is not strange that the country suffers.

In the chair example, if every leg understood and supported the benefits of being part of a sitting system, then the chair would have an organic consciousness. It wouldn’t be a broken chair, because each part would compensate for the system’s vulnerability and do its best to make the system function. The chair would be less dependent on any one of its parts. It would work like a hand.

I think I understand: To be efficient in the long term, an organization should act like a hand in which no finger is indispensable. In an organization, teamwork should be such that each person supports the other, so that no one is indispensable.

Look at your hand. Which finger is the most important one? Most people pick the pointing finger. It is the most responsive to our instructions. Look at sculptures. The guy is on a horse. Hand is pointing forward and the pointing finger pointing the way.

The pointing finger is the most important finger for leading a young organization. You do not reason too much with a toddler when to go to sleep. You tell him to go to sleep because it is time and take him to bed and that is it. But when this toddler grows to be forty years old you cannot and should not treat him as if he is a baby. Right? Some mothers try to baby their adult children and what happens?

So, in order to have a hand, which finger is the most important one? It is the thumb. Why? Because it is the thumb that makes the four fingers into a hand. In a certain language, the thumb is called “the hand maker.”5 If you have no thumb, you have no hand. That is the integrator, the team builder.

Now look at my hand. Fingers straight up, together, and touching each other. What is that? Go to any church, of any denomination, or Indian temples, and look at their gods and goddesses. What do you see? They all stand with their hand half up and the fingers together. What are they telling us?

Be different, but together. Each finger is different, but to be a hand we need to accept each other’s differences and work together. Not in spite of being different, but because we are different. Each finger does something the other finger cannot do as well. There is synergy when they work together.

In the Middle East this is called a hamsa. Women carry it as an ornament. People in the Middle East put it on the door at the entrance It is a blessing: different and together.

5 I am sorry I forgot which language it is—I have lectured in over fifty countries, and I do not remember now who told me this. to their home.

In the Middle East, when they curse someone they spread the fingers and put it in front of the face they are cursing as if saying: Be different and not together.

The difference between a blessing and a curse is only two inches: Are we different together or different not together? For being together we need the thumb. The (I)ntegrator.

Have you been to New Delhi, India? Over the booth of the immigration officer, as you try to enter the country at the airport, you will see sculptures of hands. Each hand has the thumb touching a different finger. I suggest to you, those sculptures represent the Indian culture, which is very (I).

That is what we need to do? (I)ntegrate not in spite of being different, but because by integrating differences we can create synergy.

Yes, you do not want fusion, forcing all to be the same in order to be together.

Like fascism and Communism. Or some religions. Come to think of it, all radical religions reject differences.

What we have here is a struggle between those who accept differences and know how to benefit from them and those who reject differences and are fearful of them. It has been going on for centuries. Sparta and Athens had those differences. Look at who was fighting whom in both world wars. It was democracies against totalitarian or monarchic regimes.

This struggle will be here forever?

I believe so, except that now, with advanced weapons of mass destruction, it is becoming massively more dangerous.

We have gone wide and far off the subject of how to manage a business. Can we get back to what am I supposed to know to lead better?

Ask yourself: What is my managerial or leadership responsibility? What is my rock? Who are the clients and what are their needs? Who are the stakeholders I need in order to lift the rock, and how do I foster the necessary interdependence between stakeholders? How do I get people to realize that we need each other? For instance, do we have a common mission? Do we have a reward system that nurtures cooperation?

When clients are satisfied by satisfied stakeholders, you have a system in which no one is indispensable.

If people share a vision and have a reward system that nurtures the pursuit and achievement of that mission cooperatively, then it is likely no one will be indispensable. People will back each other up and not wait for an outsider to fix their problems.

You should create an environment where you (I)ntegrate the clients and stakeholders. When clients are satisfied by satisfied stakeholders, you have a system in which no one is indispensable.

To be healthy means that the organization functions to serve the present purpose for which it exists, (P), efficiently, (A), and is capable of proactively coping with a changing environment, (E), with a consciousness of interdependency so that no one part of the system is indispens- able, (I).

(PAEI) is a code that can be applied to many, many situations or needs. Here we are using it to analyze decisions that make organizations healthy or sick. If you study Adizes, you will find the (PAEI) code6 can be used to analyze leadership styles,7 organizational structures,8 and strategies,9 as well as to predict future problems,10 and much more. As a matter of fact, at the Adizes Institute every year or so, we find another use of the (PAEI) code. It is like chemistry. In Russia they call Adizes the Mendeleev of management.

Now let us go back to the group of people who, on Friday evening, while drinking beer, decided to go hiking to a lake, came across a rock that blocked their passage, and had to decide to move the rock or to go back. (Or maybe camp there and have a barbecue.)

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(I) is not of the same quality as the other (PAE) roles. It belongs to a “different league.” In a sense, (I) is needed for each one of the (P), (A), and (E) roles to function well. The (P) role is not in a vacuum. You have to sense what needs to be done. Thus, at least a small amount of (I) is needed. However, in this case, the (I) is not oriented to people but to a task. For a (P) person to sense what needs to be done, she must have some sensitivity to the task, to the situation. The (P) role without this sensitivity will be operating in a vacuum.

The same is true for the (A) role. One has to feel the system and its needs in order to administer it.

And the same holds for (E)ntrepreneuring. An entrepreneur feels what he is innovating for and about. A market whiz feels the market, senses it, and is integrated with it. An entrepreneurial engineer feels in her bones the equipment or machine she is inventing. This also applies to artists. They are (E)s too. A good sculptor senses the stone he is working on. He feels the object of his work, as if the two are integrated.

Without (I) the other roles are barren, unproductive, I might even say useless.

The purpose of existence of any system is (I)ntegration, the (I) role.

In our story about five friends going on a hike to a lake, first note that these five people were friends. Their friendship and sense of belonging expressed itself in a need to do something together. Initially, that need was satisfied by drinking beer, (P). Then, it was satisfied by going on a hike to a lake. New (P). Then, it was satisfied by working together either to lift the rock, another new (P), or to come up with another plan, maybe give up on the lake and go and have a barbecue somewhere else, (E). Relating and interrelating, (I) was at all times present.

If the (P) role is driven by the need to achieve, the (A) role by the need to control, and the (E) role the need for immortality or the fear of death, the (I) role is driven by the need for affiliation.

The ultimate reason we do anything is the (I) role, the interrelationship. (I)ntegration is the ultimate and constant need. It expresses itself by different yearnings, such as to go and drink beer together, hike together, or paddle a canoe together.

(I) is the ultimate purpose for our existence. There is nothing in this world that doesn’t ex- ist to serve something else by functionally interrelating with it. The pen I write with has no meaning if it does not leave a mark on paper. Breathing is useless unless the oxygen feeds my body. Nothing in itself is functional on its own. The ability of anything to function is evaluated by how it serves its clients. The purpose of existence of any system is (I)ntegration, the (I) role.

In personal life this need to interrelate is called the need for love. I suspect that every prob- lem in our personal life is a manifestation of a lack of love, and the solution is to experience love.

You can see how powerful this need for affiliation is in prison. Why is prison a punishment? Beyond the fact that the prisoner lost freedom to act and power over his life, there is loss of affiliation, and the most severe punishment in a prison is being put into isolation. People go crazy, and some, if isolated for too long, commit suicide. To calm prisoners down, some prisons give prisoners a dog to raise. That dog gives them love and it has an incredible calming effect. In the US, they bring dogs to be petted by the patients in hospitals. It has a healing effect, I am told.

Interrelationship, (I)ntegration, is forever and constant. It expresses itself in different needs we wish to satisfy in the future. It is like saying that spirit is constant and forever. It expresses itself through different bodies when we are born, and it continues to exist when we die. And this (I)ntegration exists as long as we serve each other for a totality that will, in turn, serve us. That’s the road to being alive forever, through your deeds and not through your body or thoughts.

The ultimate need, to be (I)ntegrated, to be functionally interdependent, is constant, just as spirit is constant.

How does that happen? When does a particular expression of this constant interdependence start? When is an organization born?

When the founders of a company become inspired to start the company, they call their banker, their parents, and anyone else they need to call. They take out loans and set up the company. Now, what did they see before their eyes that day they were inspired? Did they see profits?

I don’t think so. When people start companies, they won’t see any profits in the first few months, or maybe even years. As a matter of fact, if they closed up shop and went to work for somebody else during that time, they’d make more money.

So what did they see?

An opportunity to make profits.

Note the choice of words: an opportunity to make profits. That tells you that you have to focus on the opportunity, and if you exploit the opportunity correctly you will reap profits. Eventually. From our previous analogy you can see that the profit is the bulls-eye and the opportunity the sights.

What do you think that opportunity is?

When needs meet capabilities, an opportunity is born.

Added value is created by satisfying the needs that someone is willing to pay to have satisfied. So the opportunities we are talking about are the needs in the marketplace that are currently not being satisfied well, or at all, and that could be satisfied by the new company the founder is contemplating. Founders see needs they believe they can satisfy and that should be satisfied. When needs meet capabilities, an opportunity is born.

Right. An organization is born when the interdependence is real- ized and a commitment is made to satisfy it.

The first thing to note is that the founders were conscious; they were not sleeping. They were conscious, aware, and sensitive to something else beyond themselves. Out of that consciousness of interdependence, the (I) role, came an awareness of specific per- ceived needs that can and should be satisfied. That need could be for ice cream or a new medicine that will cure a disease. This is the (E) role, identifying the specific need that should be satisfied. Then, the founders get moving on the path towards satisfying that long-term need and, in the process, encounter obstacles (rocks). Removing rocks, (P), is functional when it enables the founders to move closer to their long-term goal, (E), without ruining the grand purpose of the whole enterprise, which is to functionally (I)nterrelate. You can achieve (E) and (P) goals and in the process destroy (I), and when that happens you will feel the whole effort was not worth it.

Take a person who has a dream to build a business empire and works hard, stepping on people, destroying lives, including destroying his family. He might achieve stardom but wonder if the price was worth it.

Drinking beer was the initial way to satisfy (I) needs. The person who suggested a hike noted a new need to interrelate. He is sensitive to what the people aspire to. When the group comes across the rock, this person should still be sensitive to the grand need to interrelate functionally. In light of that, he should lead the process of removing the rock or abandoning the hike.

The problem with some large organizations is that by the time they employ several thousand people, very few, if any, of the employees know why they are walking on that path or where they are hiking to, or where the rock is.

Because they’re all pushing the rock without knowing why?

Yes, and pushing each other. “You’re stepping on me.” “No, you’re stepping on me.” They are preoccupied with turf wars. They spend their time dwelling on the liability, rather than on the purpose and benefit of their interrelationship and interdependence.

What do you mean by “interrelate functionally?”

I mean create added value. If the process of removing the rock creates tension and fighting, while the purpose of the hike in the first place was to have experience being together, they might move the rock, but miss the purpose of moving the rock.

The same holds true for a marriage. What is the purpose of being married? Is it to have children or to love and be loved, in which case the children are an expression of the couple’s love for one another? What about a couple that cannot have children? Should they divorce, or can they find another manifestation of love through which they can experience their purpose of being together?

What if they have problems in their marriage? Those problems are “rocks,” issues like career decisions, what house to buy, how to spend money. How can those rocks be removed? What are the right decisions? It depends on what they are committed to or why they are together in the first place.

If it is love, insisting on being right about how to remove the rock correctly and vigorously insisting on it, and fighting to win the argument, can be quite wrong. They may move the rock, arrive at the lake, and find they destroyed the purpose of why they went to the lake in the first place. In managing, leading, parenting, interrelating in a marriage, and interrelating in general, always ask yourself: What is the purpose of the relationship in the first place? What are you committed to first and above all? The answer, if you are conscious, is love. If you are con- fused as to how love got into the conversation, relax. It will become clearer later. For the time being, ask yourself as far as you can be conscious, what are you committed to? What are the long- and short-term needs for which the interrelationship of your organization exists, whether that organization is you personally, your marriage, your business, or society? Next, ask yourself how you should satisfy those needs without undermining the interrelationship itself.

The ultimate (I) is love. I found out that people who love what they do succeed better than those who don’t. It is obvious, is it not? They are passionate about what they do, thus they succeed. They are integrated with their actions. They feel the object of their efforts, thus success.

Do you love your place of work? Do you love your clients? Do you love the product or service you provide?

In all conflicts, all assignments to remove whichever “rocks” there are in your life, if you are guided by love, do it from the heart. You will succeed even if you fail. You will not feel guilty or like a failure, because you did it with all your heart, with love. What else could you have done better? So if it failed, it was supposed to fail. You could not have saved it. It was beyond your efforts.

Do you realize that people who are in love look younger than their age and people who hate look old? What is love, if not total integration, and we already said integration is the sign of health. If you are healthy, you live longer. Love prolongs life.

To have a sustainable, long-lived organization, it should be based on love. Love your employees. Love your clients. Love the product. Just love, and the more you do, the longer the organization will survive, and the more successful it will be.

If you’re not convinced, try hating for a change. Hate customers. Hate suppliers. Hate work- ers, and see how long will you survive. . . .

Then what?

The organization does not become effective and efficient in the short and long term by itself. Someone needs to make (PAEI) decisions that will then make the (PAEI) organization pro- duce (PAEI) results. These results produce short- and long-term value added, which commercial organizations measure by profits. Whose role is it to see that (PAEI) decisions are made? That is the role of leadership, management, parenting, or government.

I’m looking forward to the exercises, because this was really confusing!

We will have many exercises. In our next conversation, we’ll start analyzing what happens when any one of these roles—(P)roviding a needed service, (A)dministering, (E)ntrepreneur- ing, or (I)ntegrating—is missing. We will learn how to diagnose leaders or managers and companies. If we see something is not working, we will be able to identify what’s missing. If we know why it is happening, we should know what to do about it!

DIAGRAMA

Summary

Let me summarize to see if I understand the material. This was very complicated, to say the least.

It will become clearer through lots of discussions and examples. Trust me!

Okay. To manage change a decision has to be made and implemented. Good decisions make the organization effective and efficient in the short and the long term. They make the organization functional, systematized, proactive, and organic in consciousness.

To be effective in the short term, the organization has to (P)rovide for the clients’ needs. The (P) role can be measured by repeat sales out of total sales.

Efficiency in the short term means using the least amount of resources, including managerial time, to accomplish something. For that the organization needs to be (A)dministered, systematized, and organized. In order to do that, the organization needs routine and discipline.

For effectiveness in the long term, the organization has to be (E)ntrepreneurial, to pro-act. It has to imagine future clients’ needs and take action in the present to be able to satisfy those needs in the future. In order to do that, it has to be creative and willing to take risks.

For efficiency in the long term, the organization needs to be (I)ntegrated by creating an organic climate of cooperation between and among all stakeholders to satisfy the needs of the clients.

If all stakeholders cooperate and no one is indispensable, the organization can be efficient for the long term. For that the organization has to identify and be sensitive to the needs of all the stakeholders and clients, and create and nurture a climate that mutually satisfies those needs.

Good summary! From now on, we won’t have to cover as much theory. Instead we can focus on applications.