#47 - SHIT WILL HIT THE FAN [P2]
Questioning your abilities is sometimes more effective than pumping yourself up - Dan Pink
IS IT A MATCH?
In part 1 of this series (#46), we decided to create our own version of the Rendanheyi (RDHY) model. Each of the 20 districts of IkOciti would be governed by independent commercially-driven macro-ventures. We call them macro-ventures because they coordinate and encourage a swarm of independent micro-ventures that perform most of the operational tasks on the platform. The chosen structure of macro & micro ventures decentralizes decision-making resulting in less bureaucracy. Yet what might work on paper does not always work in reality.
What is the potential caveat of using the commercially-driven macro-ventures on an impact-first platform?
The original RDHY model used by Haier was developed for a profit-maximizing company. IkoCiti is an impact-first venture. We only make money if we demonstrate structural impact. No impact; no sales. Big difference. All parts of the platform need an impact-centric perspective – one team, one dream. A macro-venture that thinks money-first & impact-later is not helpful. Compensation (incentives) must be structured to align individual interests with the impact-first mandate.
When talking about compensation for the macro-ventures, we need to keep in mind that each district is different. The Manufacture District will generate more revenues. Is the Manufacture District more important to us? No! The Activist District creates a lot of impact; it is the soul of the organization. Would it be fair that they will be compensated less? No, it would not.
Do we give all macro-ventures the same monthly compensation? Is that fair? What if some districts execute a lot more work than others? Do we pay them an equal rate per hour? I hope not. I am not a big fan of the hourly compensation schemes. Can we somehow compensate macro-ventures for the impact they individually/collectively create? That would create a demand for impact measurement experts. I oh-so hate that idea - expensive experts proposing complicated schemes that nobody intuitively will understand.
PERFORMANCE-DRIVEN
We recruit the macro-ventures. What are our selection criteria? What type of people do we look for? Should we recruit revenue-maximizing sharks playing hardball from minute one? Or should we focus more on the social entrepreneurs embracing the triple-bottom line: people, planet & profits? But what do we do if the shark is better than the tree-hugger?
Our compensation will probably not attract the dollar-chasing sharks but I do believe that our compensation plan should be performance-based. Yes, the wrong incentives result in counter-productive behavior but when done right it could be a strong incentive for competitive people. And the platform needs rainmakers going the extra mile.
Let’s make a decision. The macro-ventures receive a fixed monthly fee equal to all. In addition, they receive a periodic impact-related bonus. The benchmark is a combination of different impact indicators. The objective is to align the platform and the macro-ventures around the impact-first mandate. The more impact they (help) create, the more they earn. If it works, it works. If it ain’t working, we change it.
Truth be told, money is a limited external motivator. More often than not, money pays for people doing all the routine stuff well but the non-routine not so much. Money will get you to 6 but we need 8. You get the extra 2 points by recruiting internally-motivated people who cherish solving problems. One reason why we embrace the RDHY model is that we believe it attracts the internally-motivated.
The RDHY model will give us a higher high but what about the downside?
MEDIOCRITY NOT ACCEPTABLE
IkoCiti is a tool for inexperienced Maveriqs. We cannot evaluate their performances if the tools they use are inadequate. You cannot blame the carpenter for a wobbly chair if you don’t give her the nails he needs.
Macro-ventures have a difficult job. Encouraging, supervising, and coordinating people/squads means juggling thousands of details a day. Nothing is more human than underperforming in those areas you like less. Communication and customer feedback loops are crucial but most companies suck at it. We want people to communicate clearly to elicit (critical) feedback in a continuous effort to discover our weaker areas.
It is easier to come up with cheap excuses than look honestly in the mirror. But there is another reason why getting feedback is hard. Most feedback sucks and is worthless - too general and too superficial. But ignoring feedback means inviting the shitstorm to hit the fan. If we want to successfully run a decentralized system, we need to listen to our network of swarms. RDHY helps us get better feedback from people responsible for performance – not too general and not too superficial.
HIGHER-UPS; LOWER DOWNS
RDHY helps us achieve a higher upside. But does it also increase the risk of lower lows? Besides the Haier people, few people in the world have lived the RDHY experience day in, day out. I am no RDHY expert (far from it) but coordinating (supervising) a swarm of independent ventures might require high-quality macro-ventures. A swarm of birds might have some magical collective steering wheel guiding them in the right direction. Humans are no birds. I fear that the logistics of it all require more than the average hands. What happens if we give an F1 race car to an amateur rally driver?
The theoretical answer is that in a competitive environment, underperforming marco & micro units will be replaced. But that assumes a constant supply of talented people. And why would those talented people come to our platform? Do tree-hugging sharks live outside in the wilderness or do we have to breed them carefully in a farm system, not unlike to what we do with the Maveriqs?
I believe we must invest special time in potential macro-ventures. You will not find a lot of tree-hugging sharks on the playground, disco floor, or university campus. We need to mold them like artwork.
SMART PEOPLE TOO STUPID
My take on things is that individual (non-lazy) mistakes are a natural part of doing business. The challenge is to learn from our mistakes through critical feedback. We need to think through the whole platform searching for the weak spots that might explode and create harm someday.
You hear through the grapevine that the banking sector attracts smart people. Is Lehman Brothers buying Silicon Vally Bank, right now? Not really, they are dead sharks in the water as is E.F.Hutton & Co. as is …. (insert long list). All were managed by highly intelligent sharks too stupid to truly think through the risks - all of the risks.
So a group of smart people alone are not enough to manage a company well. Static supervision will not solve the problem because the Madoffs always outplay the nerdy accountants. I want to structure IkoCiti in such a way that if some small shit hits the fan somewhere, we all know about it. And we all do something about it because we are incentivized to do something about it. Clean it up before it spreads Covid-like.
Shit will always hit the fan. A smart system knows how to de-shit the fan quickly.
