The Power of Predictability
by
From the Magazine (July–August 1995)
In the beginning, life was uncertain, brutish, and short. Was the creature behind the bush the hunter’s lunch, or was it looking for lunch? A moment’s hesitation, and the hunter went hungry or satisfied another hunter’s appetite. Over time, the hunter was able to predict, just by watching the creature’s shadow, whether it was suitable prey. Bands of hunters put their individual experiences to collective use: If some people flushed and chased prey, and then others ambushed, the probability that everyone would eat increased. Being part of a group offered physical protection, which the solitary hunter didn’t have, and gave the hunters confidence in their ability to predict the outcome of their expeditions. Without such confidence, the members of the first organizations might well have starved.
As people turned from hunting to farming, then to manufacturing, the link between organizations and the need for predictability became more complex. People joined organizations to make their lives more predictable, and those organizations depended on other organizations to perform certain activities in a predictable manner. Consider Adam Smith’s pin maker. He went to work with other pin makers because trying to earn a living by making and selling pins on his own would have been even riskier than hunting on his own.
Membership in an organization gave the pin maker economic security, but think about the degree of predictability that his activities required: Coal and iron had to be mined, the iron had to be turned into steel, and the steel had to be delivered to his workplace. The pin maker’s ability to get his job done depended on a complex sequence of events over which he had little control, but the events were predictable enough that he needed to concentrate only on creating a sharp point on a steel wire and cutting it as many times as possible during the hours allotted to work. In turn, milliners, who needed pins to fashion hats, were able to concentrate on their work without having to worry about what went on in the pin makers’ workplace or in the steelworks.
Fast-forward to the 1960s, when global organizations—many the size of small countries—promised their employees not only economic security but also personal fulfillment and respect from fellow employees and the community, in return for performing a handful of clearly delineated activities. Like the pin maker, each individual depended on the predictability of other employees with whom he or she had little contact. And most members of such organizations could work with the same assurance that the pin maker had: Other people understood what they were supposed to do, would do it, and all would be rewarded for a job well done.
Leaders of global organizations—indeed, leaders of all organizations—have focused on increasing predictability for their subordinates and thus for the organization as a whole. Recall Frederick W. Taylor’s turn-of-the-century theory of scientific management, according to which the manager’s job was to set clear standards of performance. Later generations of gurus urged managers to develop a strong, clearly defined corporate culture and involve employees in managerial decision making. As a result, managers learned to help employees calculate the consequences of their actions and gauge which activities would improve their standing in the company. Predictability in the workplace led employees to make sacrifices today, confident that they would be rewarded tomorrow. It led managers to invest in training, secure in the knowledge that their employees would remain with the company long enough to pay back some of that investment. In sum, predictability built the trust that allowed people to synchronize their actions in mutually productive ways.
What is happening to predictability in an intensely competitive, rapidly changing global economy? It is being destroyed. The practices that leaders are adopting to make their organizations more competitive are ignoring the human need for predictability. Consider the effects of the tonics now being taken in the name of competitive well-being: Reengineering throws out all the old procedures and rules of thumb by which an organization has operated. Continuous-improvement programs promise only that an organization’s rules will continue to change. Matrix management requires that two (or more) managers, who need not agree with each other, judge employees’ work and determine their future in the company. “Rightsizing” sheds people, often regardless of their individual skills or performance.
Nowhere is the notion of predictability more threatened than in the virtual organization, in which individuals are left to fend for themselves, much like the solo hunter. In fact, judged by the standard of predictability, the virtual organization is not much of an organization at all. Instead of producing and selling something, knowing what the exact reward for performing that work will be, members of virtual organizations spend most of their time negotiating their share of the value produced and their relationships with other players—both customers and suppliers—who are constantly moving in and out of their virtual world. The pin maker, who enjoyed predictability up and down the value chain, was able to spend his time making pins. The individual in the virtual organization, however, must create a value chain before anything of value can be produced.
The need for predictability is not a need for guarantees. In fact, many people seek out games of chance in the spirit of nothing ventured, nothing gained. But such games have rules and calculable probabilities of achieving one of a set of known outcomes. The participants can weigh the odds and act accordingly, like restaurateurs who buy supplies and staff their kitchens based on the probability that a certain number of people will dine at their restaurants on a given day of the week in a given season. Even if people can’t know the odds of achieving a certain outcome, they are willing to accept uncertainty if they believe that their experience gives them an advantage. Commercial fishermen can’t know the exact odds of whether a storm will blow up on a given day, but they keep their boats and their gear maintained and trust that their experience will enable them to navigate rough seas. Similarly, R&D managers can’t know whether their teams will develop a winning product, but they enlist the best people and develop the best processes to improve the odds of a breakthrough.
In many organizations today, however, people can’t control the outcomes of their actions or even tip the odds in their favor, no matter how much experience they have. Moreover, even if they do achieve a desired outcome, they can’t always predict the consequences. Imagine trying to interest someone in playing a competitive sport in which the determination of whether the high score or the low score wins is not made until after the final whistle. No one of sound mind would participate. Similarly, imagine asking division managers to cut costs without letting them know whether their divisions will be rewarded or put up for sale if they achieve that outcome. People will go mad if punishment and reward are doled out randomly and if they cannot know in advance whether a given outcome will be a win or a loss.
The discontinuities that so many current management practices introduce into people’s lives may not drive them mad, but they do encourage them to keep their résumés up to date and their commitments to their employers minimal. Employees’ concerns are not What can I do to create value? but What do they really want me to do? How will I be evaluated and by whom? Is my division part of the company’s core business? If the restructuring succeeds, what will it mean for me? Reengineering, restructuring, rightsizing, matrix management, and the creation of virtual organizations may yield short-term efficiencies, but the cost is a lot of time and energy spent reading tea leaves.
Many managers explain the erosion of predictability inside their organizations by pointing to the difficulty of surviving in an unpredictable world. Despite their efforts to do the right thing with respect to quality, business processes, environmental compliance, skills development, technology, and labor relations, many companies may suddenly find themselves in the wrong business and, soon thereafter, out of business. Customers are fickle. Every decision has to be backed up by a flood of information. The government continually changes its tax and regulatory requirements. Political change often makes planning impossible, and savings evaporate, skills are devalued, and human interactions take sudden, unanticipated turns. Fortunes rise and fall with the performance of the stock market rather than of the company. All that unpredictability is real, but too often, managers think first about making their own lives more predictable. Golden parachutes, strategic restructuring, downsizing, and an emphasis on earnings per share all improve predictability for those at the top at the expense of those below them.
People will do whatever they can to find a world in which they can predict the outcomes of their actions and the consequences of those outcomes. Some flock to employers that offer their faithful a clearly defined mission and a role in achieving it. By laying down a few rules by which people can succeed, companies such as Microsoft, Amway, and McKinsey simplify a complicated world.
Other people give their first loyalty to professions or industries—accounting, finance, investment banking, or marketing—rather than to a company. For those people, professional titles offer the same kind of predictability as a well-known brand. Still others become lone wolves, who take without giving, unencumbered by the imperative to build trust. They often can be found acting as CEOs and advisers for hire, taking millions of dollars for a couple of years’ work and leaving others to clean up after them.
Are the leaders of today’s organizations supposed to think first and foremost about providing a safe haven in an unpredictable world? No. The manager’s primary responsibility, of course, is to ensure that the organization does what it sets out to do as efficiently as possible. But meeting that challenge means enlisting other people, who won’t be able to work efficiently if they feel that there is no order around them and if they can’t determine where their actions will lead them. That is not to say that managers should reject the various programs that promise organizational improvement. Such programs are some of the only tools for survival in an intensely competitive and uncertain world. But managers must recognize the paradox that many of those tools are in fact destroying what holds organizations together.
Companies must recognize the paradox that many management tools in fact destroy what holds organizations together.
The best way to approach organizational change is with the realization that dire predictions are probably better than no predictions at all or positive predictions that no one believes. When Winston Churchill became prime minister of Great Britain in 1940, he told the House of Commons, “I have nothing to offer but blood, toil, tears, and sweat.” The leaders of today’s organizations must start with the same kind of honest assessment of the organization’s situation, the possible outcomes of any action the organization may take, and what each outcome will mean. If, for example, managers try to fool their employees, and perhaps even themselves, by downsizing a little at times, promising after each round of layoffs that, at last, the organization is healthy, they destroy predictability—and morale—for those who have been kept on. Better to make one cut than to amputate two inches at a time.
In addition to making few promises and keeping the ones they do make, managers can help maintain predictability during a time of change by establishing the rules by which people can succeed and then playing by those rules themselves. People who perform well according to the rules will not find their lives disrupted by abrupt and arbitrary changes. They will understand the consequences of a given action and what those consequences will mean for them. If, on the other hand, managers seem to decide arbitrarily whom to let go when they have to downsize, without considering employees’ performance, they make life highly unpredictable for everyone. Moreover, they fail to improve the quality of the organization.
Creating an environment in which people can predict the consequences of their actions goes hand in hand with ensuring predictability in an organization’s relations with both customers and suppliers. Good marketing and consistently high quality help customers know what to expect from a company. If customers come to trust a company, they are likely to turn to it often to solve their problems and to learn about new products and services.
A similar logic applies to suppliers. Managers might be tempted to spend a lot of time searching for the cheapest supplier, but what will the company get out of such arrangements? Unpredictable service, most likely. Cultivating relationships with a stable set of suppliers helps each side know what to expect from the other. When a company takes the time and effort to share its strategy with suppliers, it motivates them to do whatever they can to help the company produce the best products, now and in the future. Moreover, solid relations with suppliers also make life more predictable for the company’s employees, who can then focus on delivering the best products and services to their customers.
Managers can still help people predict the outcomes of their actions.
Human beings have finite energy and finite time in which to expend it. The more that managers make clear to employees and other stakeholders which courses of action will improve their lives, the more that employees can focus on creating value. What our ancestors discovered holds true today: Survival still depends on the ability to respond quickly to change, and organizations can still help people predict the outcomes of their actions and thus act swiftly and predictably. Without predictability, people will be too scared not only to take risks but to take any actions at all. Life within an organization will become what it was for the solitary hunter: uncertain, brutish, and short.
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