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(originally published by Booz & Company)


Fast Track to Recovery

As critical as the informal, “soft” side of things is, it cannot become an end unto itself; it must be viewed as an approach or a tool for accelerating and enhancing hard results. In fact, when the informal and formal are in balance and aligned, the performance improvements and strategic advantages that accrue are tough to outpace. People feel emotionally satisfied when they are recognized for steps that lead to concrete goals. And concrete goals (as well as the steps that lead there) serve as motivating points for soft enablers such as sustained commitment, unleashed creativity, and collaboration across barriers. As enterprises emerge from the recession, the way they integrate their informal aspects into the operating strategies they choose for steering through this difficult period could determine the organizational outcome. Here are the five most salient challenges that companies can expect to face, and the potential impact of soft skills that management should consider.

1. Sustainable lower-cost operations. Recessionary cost cutting is typically aggressive and arbitrary, with little consideration of future needs. The cuts are mandated rather than motivated. Such one-time crash cutting often leaves companies short of the very skills they need to sustain lean performance over time. Hence, recessionary cost cuts are mostly temporary and the costs come back quickly. Two aspects of the informal organization can help avoid this insidious “cost creep.”

  • The informal organization is integrated across organizational boundaries; as a result, it can sustain lasting collaboration that is hard for competitors to match.
  • Informally supported commitment lasts longer. Because of the emotional power of motivation, people feel good about, and take pride in, sustaining lower costs. For example, rather than implementing formal cost-cutting goals to trim US$50 million in expenses, Texas Commerce Bank reframed its objective to adopt a more energizing theme: eliminating whatever annoys bankers and drives customers crazy. Through hundreds of focus groups with almost half of the company’s 9,000 employees, leaders identified sufficient cost-cutting opportunities to exceed their goal by 100 percent.

2. Competitive advantage. Competitive advantage is most powerful when it is based on the few distinctive capabilities that a company can sustain over time, such as Southwest’s point-to-point travel system (its alternative to a hub-and-spoke network). To drive consistent company-wide skills — indeed, to derive a company’s identity and maintain an advantage over rivals from a set of company-wide skills — objectives must be consistent across the organization as well as from top to bottom. Both formal and informal mechanisms are needed to instill the operational focus into the company culture.

3. Breakthrough innovation. Some companies, like Apple and Sony, depend on developing game-changing innovations to stay ahead of the competition. A lot of companies can come up with an innovative, winning product or service once or twice, but the few that manage to do so routinely have mastered two critical capabilities: identifying and cultivating creatively gifted individuals, and nourishing informal networks. Ideally, gifted individuals are planted in parts of the organization where they can extend their interactions with people who can enrich their creative ideas as well as with people who can ensure that there will be appropriate support and buy-in. In the well-documented story of 3M’s Post-It Notes, the inventor, Art Fry, who first used his blockbuster sticky memo paper as a temporary bookmark in his church hymnal, was not only a uniquely creative individual but also a master of informal networks. Via his many contacts throughout 3M, he amassed multiple uses for Post-Its as well as valuable internal and external support for commercialization. As Fry learned, the integration of informal creativity and formal production is the secret to innovation.

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