Every leader of a company today lives in fear of the disruptive innovation: the new technology, new service, or new government policy that enables customers to bypass your industry completely and get the same service or product from another source. It happened in the newspaper business, when online services stripped away its near monopoly on classified advertising. It happened in the telephony industry, when cell phones decimated the business model of the “Baby Bells.” It happened in the banking business when deregulation enabled retail banks to move into investment banking. It’s happening in the energy industry today.
To spark the kind of innovation that enables companies to change and adapt and not be displaced, you need to accelerate the pace of change and arm people with the ability to think—and act—strategically. The newspaper industry knew the change was coming. It just couldn’t see the extent of it or plan well for it, because it couldn’t see the full benefit of cannibalizing its existing business to enter into a new business. As the CEO of one newspaper group put it, “We didn’t appreciate the scale of change.”
Bill Weiss, former CEO of Ameritech, describes his experience leading people through change as follows:
“It’s a race where you run the first four laps as fast as
you can—and then you gradually increase the speed.”
To accelerate the pace of change, leaders must focus on creating systems of learning. It sounds easy, but it’s not. The secret is what I call “learning loops.” Learning loops are similar to feedback loops except they are deliberately designed to achieve organizational change at maximum speed.
Toyota and Honda pioneered the practice of learning loops in the 1950s and 1960s when they organized people into teams and gave those teams the power to measure their performance and improve. The “virtuous” circle of learning, innovation, and higher performance—what the Japanese call kaizen—has since been put to use in many manufacturing sectors. Our firm has worked with a wide array of clients to implement learning loops—and we’ve yet to find an industry, or a business process, that doesn’t improve when we do so.
As people begin to trust that the intent is not to penalize but to learn and adapt, they start to experience the power of learning loops and see real improvement. Often it begins with comparison of performance across teams. One of our clients, a revenue collections agency, deploys teams of tax collectors and auditors in district offices across the state. As we worked with them to install learning loops, they began to measure things like the timeliness of tax filings, the efficiency of collections, and the effectiveness of tax audits. Over time, the teams started to talk about which districts were more effective in each aspect of the business. Some districts were more effective at tax audits, for example. It turns out they were using a specific modeling tool for predicting which audits would yield the most revenue. As a result, other districts adopted the same model and experienced real improvement.
Ten Questions To Ask As You Build Learning Loops:
By their very nature, learning loops involve people at the front lines of the company, since they are the ones who ultimately effectuate change. So long as those people trust management, the introduction of learning loops should be relatively easy. But when people at the front lines distrust management, then it can be extraordinarily tough to install learning loops. People will suspect that the learning loops are not designed for learning, but instead as a way to weed out underperforming teams and individuals. They will stand shoulder to shoulder in resisting attempts to measure the effectiveness of their work. In situations where we’ve encountered this level of distrust, we don’t introduce learning loops right away. We go back to the practices described in the first four chapters of this book, and start there. Only with a foundation of trust in place can you begin to build learning loops. No amount of pressure will force people to learn—it has to be a choice made voluntarily.
Learning loops are only useful if people take time to share the information and discuss how to improve performance. This can be problematic when managers and team members from different departments get together. “Nine times out of ten,” as one manager said, “the problems within our company result from the invisible barriers between departments.” Managers who haven’t communicated very well in the past are most likely to feel threatened by learning loops. They will refuse to disclose key data; they’ll halfheartedly participate in brainstorming; in short, they’ll find all sorts of excuses to refrain from engaging in the process. Yet the biggest gains in performance are going to occur across these departmental communication cracks.
The first sign of resistance will be around sharing the information across departments. People will decide to email the performance information without creating a forum to discuss it or learn from it. As a leader, you can’t let this happen! People must talk in order to learn. Meetings should be held to build trust among the players. This investment in communication will be difficult for some people to swallow. Senior leaders need to visibly support the process and highlight the dividends. They need to continually champion the process and show the linkage between learning loops and accelerating the pace of change.
Leaders also need to model the kinds of discussions that should take place: they need to ask tough questions, look under rocks, and ask why things aren’t the way they expect them to be. Here are a few examples of the tough questions we like to see:
Here are some additional considerations in making learning loops work.
Learning loops need to be immediate. People need to hear as quickly as possible what’s going on. It’s not good enough to have annual performance updates. It’s not good enough to email the report or publicize it on a website. Teams need to get the information in close to real time, think through the implications, discuss options, and share ideas. Feedback needs to occur as soon as the information is available so that people can talk about it and figure out ways to adjust their business practices and improve. That’s how learning loops work.
At CarMax, the chain of used-car superstores, former CEO Austin Ligon held regular sessions with employees and began by sharing the latest performance information. Then he would ask: “What are we doing that is stupid, unnecessary, or doesn’t make sense? How can we improve our performance?” He personally took part in these brainstorming sessions and made sure every idea was recorded and received a response.
Learning loops should occur throughout the organization. Don’t limit them to the senior leadership team. Frontline teams need to be talking about which targets are being met—and which are not. Frontline supervisors should be given the information as soon as it’s available and share it with their teams. Ideas for improvement need to bubble up. Every supervisor and manager should champion the learning loop process. Supervisors who are not sharing the data and facilitating good discussions need to be coached. Those who consistently fail to support learning loops need to be weeded out.
At a global IT solutions company, the CEO requires his senior leaders to attend a monthly meeting to review performance. Each leader has to explain what he or she learned in the last month—and how that learning is influencing their approach to the business. Large charts display the most recent data related to on-time delivery, change requests, adherence to budget, and customer complaints. And it gets results! Managers can no longer cover up their inadequacies or blame anyone else because everyone is in the room.
Successful ideas for improvement that emerge from the learning loop process should be documented and broadcast across the organization, so that everyone has a sense that things are happening, atoms are in motion, the pace of change is accelerating. At one of our client’s companies, the division manager does a monthly video highlighting people’s suggestions, stressing ideas that have resulted in significant improvement.
Learning loops should be composed both of “forward” indicators as well as “lagging” indicators. Achieving a given financial target is a lagging indicator of performance, since there’s little predictive value in the results. Forward indicators might be things like marketing data showing which customers are buying new products, or data showing that people are feeling more positive about your company. Customer behavior data is one of the best forward-looking indicators. At a chain of auto parts stores in the western United States, store managers are measured on how often customers provide feedback of any kind. The idea? “We want to encourage managers to figure out ways to get feedback, so they can learn what our customers think,” says CEO Greg Dunn. “If that means they go out and openly solicit it, that’s fine. We want that dialogue with customers.”
Disgruntled customers can give you a headache, but they can also give you an earful of good information. At W. L. Gore, makers of Gore-Tex products, managers are required to meet with customers once a month to discuss what they’re seeing. The information is immediately shared with employees, who are asked to dig deeper, discover the underlying causes, and make things better.
When they’re designed right, learning loops should stimulate change naturally. Think about what happens when you’re speeding down the freeway and see a police car in your rearview mirror. Your brain compares the data on your speedometer to the posted speed limit—and sends an immediate message to your foot to slow down. All of this happens in less than a second. In other words, data related to performance has been shared immediately with the people empowered to improve it!
When managed well, the experience of seeing learning loops in action is itself a learning loop for people who are slow to get on board. They see that conversations are taking place, information is being openly shared, and change is happening. They recognize a simple truth: if they don’t get on board, they could get the equivalent of an organizational speeding ticket!
Human beings learn very quickly if they have information at their disposal and are motivated to improve performance. The philosopher Eric Hoffer put it this way: “In times of change, learners inherit the world, while the learned remain beautifully equipped to deal with a world that no longer exists.”
A Tibetan proverb says, “To be uncertain is uncomfortable. To be certain is foolish.” Leaders who build learning loops enable the organization to focus on continual learning and improvement. It may be uncomfortable sometimes, but that focus on learning is what generates trust and builds a high-performing organization.
The opposite of learning loops are ignorance loops. They occur when people assume they know the answers—and avoid looking further. If their assumptions aren’t challenged, the result is an “ignorance loop”: a feedback system that reinforces ignorance rather than intelligence.
The diagram on this page shows an ignorance loop in action. In this case, a chief executive is trying to deal with the fact that sales are down—and so he fires his sales manager. When sales remain down, he defends his decision to fire the sales manager by saying the product must be at fault. He then fires the product manager! In other words, he’s no longer listening to the data; he’s defending his decision. The cycle continues until someone intervenes with better data and communication to break the cycle.
Ignorance loops are born of the fact that once we make a decision, we select data and evidence that backs up our decision. We are hardwired to selectively sort information that reinforces our “rightness.” This principle of cognitive dissonance is well known to psychologists. Once we buy a house or a car, no matter what the price, we select data to support the notion that we made a good deal. Unless we are highly attuned to our assumptions, we’ll ignore data that suggests we made a bad decision (unless or until the evidence becomes overwhelming).
One of the biggest challenges a leader faces is weeding out ignorance loops. When Reg Murphy was CEO of National Geographic, he would hold regular Friday morning meetings with his management team. The purpose was to challenge people’s thinking. Reg instructed his senior executives to come ready to learn—no matter how challenging the learning might be. The operating rule was to “talk about what we know this week that we didn’t know last week.”
People learned quickly that they had to bring hard data to these meetings—not their assumptions. They discussed marketing data, financial performance, and competitive trends. People were strongly discouraged from expressing any opinions about what the data meant until all the information had been shared.
In his way, Reg Murphy was instilling a new culture at National Geographic. He had observed a tendency for some personalities to prevail over others. He knew that if National Geographic were to successfully move into new ventures, he needed to substitute personality-driven “ignorance loops” with learning loops.
Wherever you look, you’ll find examples of ignorance loops that reinforce mediocre performance. As I pointed out in the last chapter, research has shown that people assume themselves to be more competent than they actually are. Whether it’s driving a car, navigating a new job, or playing a game, research has shown we trick ourselves into believing that we’re doing a better job than we actually are. It is part of our fate as human beings to be forever chasing ourselves and our assumptions. But it’s an important point. Our assumptions color our world. They magnify certain facets of our experience and filter through everything we say and do. We are our assumptions—at least at a cognitive level—and they are us.
How can you counter ignorance loops? The best way to confront them is with lots of good learning loops! If an R&D team is having a tough time developing new products, ask them to form a user group—and meet with it regularly. If the head of marketing says there’s no way to improve your market share, ask her to meet with your largest customers first, inquire what the company could do to increase their share of business, and then formulate a plan to increase market share. Challenge people’s assumptions. Ask “what if ” questions to get them to think creatively. Ask them to talk to customers. Get them to collect objective data.
When ignorance loops are tolerated, people quickly lose the ability to think clearly. “Groupthink” begins to take over. Strange assumptions begin to assert themselves. For example, the CEO of a biotech company liked to go on long bicycle rides every Saturday. He invited others to join him, and as a result, several senior managers assumed the CEO liked people who were also into cycling. His top lieutenants spent thousands of dollars on cycling gear because they were all vying for his attention—and promotions. In fact, it became known inside the company that joining the “Spinners Club” was important for getting promoted. Imagine everyone’s surprise, then, when the CEO picked someone outside the Spinners Club to be his successor. “I just felt we needed an injection of new blood,” he said.
Here’s another example: The three owners of an office supply company wanted to foster a close-knit, family culture in their organization. In order to do so, they hired a consultant who encouraged them to form employee teams in four different areas: marketing, human resources, merchandising, and sales.
These teams met monthly. When Marketing wanted to produce a new brochure, the marketing team had to agree before it went to press. When Merchandising wanted to add a new product, the merchandising team had to reach consensus. When Human Resources wanted to set up a mentoring program, the team designed the program. People seemed happy to be involved. The owners felt glad that they had created such a close, family culture.
Then a competitor moved in. The company lost three customers, then four, then five. The owners assembled the teams. What to do? “Run it through the marketing team,” someone suggested. But the marketing team didn’t know what to do. The owners huddled. They didn’t know what to do either. They couldn’t decide.
So they hired a new consultant. This time it was our firm. We did a situation assessment. It became quickly apparent that an ignorance loop was at work. Everyone thought: “We can only make decisions by reaching consensus among our teams. If we don’t reach consensus, then we can’t move ahead.”
Over a twelve-month period we helped this company orchestrate a shift in culture. The company disbanded the teams, inserted new managers in major roles, and got rid of the consensus culture. In its place we began building a different kind of culture. A strategic plan put the focus on expanding the firm’s suite of services. Delegations were clarified; learning loops were initiated. Within two years, the firm’s revenues and profits hit new highs.
And the employees? Internal surveys showed they were much happier now that people’s responsibilities were clear and they weren’t wasting so much time in meetings!
Every organization has what we call “hidden learning loops.” These are networks of information that send powerful signals to employees. Who has access to the boss? Whose budget is protected? Whose ego is prickly? Patterns like these send powerful messages—and create hidden learning loops in the organization.
Consider the question of status. People are always looking for cues about where they stand in relation to one another. Ancient cultures communicated their status with amulets and jewelry. In modern organizations, people communicate their status by their level of access to the boss. Effective leaders, who want to build high-performing organizations, understand this quest for status and deal with it in the following way.
First, they demonstrate their accessibility. They move out of the corner office with a secretary sitting guard and design physical layouts that send a clear message: “Everyone is on the same team here.”
Once they’re out in the open, they make physical contact with everyone. Great leaders don’t hide behind their email or limit “face time” to a single meeting per week. Instead, they walk the floors, talk to different people, ask how things are going, and talk about ideas for improvement. In the process, they’re letting everyone know: “My door is open. If you have something you want to talk about, come see me.”
Going further, they strip away unnecessary trappings of status. Private dining rooms, special parking garages, and executive elevators symbolize an “us against them” idea of management.
In essence, each of these examples is a hidden learning loop that reinforces the idea that some people are better than others, or more entitled than others. These kinds of learning loops send powerful messages—and they may not be the messages you want your organization to hear.
The genius of the reciprocating engine lies in the cyclical action of the piston and cylinder. Each downward stroke exerts force on the piston rod while drawing fuel into the cylinder for the next cycle. The genius of learning organizations is creating an engine of accelerating change. The downward stroke, if you like, is the delivery of value to customers, while at the same time the downward motion sucks information and intelligence from customers into the organization—to be digested by it immediately for the next cycle.
The point is simple: the key to high performance is creating learning loops that energize the creative process. The best learning loops are like brains, taking in data, responding to pressures, and above all continuously learning and adapting. While the notion is simple, it is difficult to pull off—especially in an organization where turf wars or political jealousies may cause managers to hoard information rather than share it. This can pose the greatest challenge for an organization—but it is also one of the most rewarding things that a leader can do.