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strategy and business
 / Summer 2003 / Issue 31(originally published by Booz & Company)


Build Your Organizational Equity

All equity involves the same two thresholds: confidence and sustainability. Most coming-of-age stories have to do with crossing the threshold of confidence: Harry Potter learns to play quidditch (skill equity); E.B. White’s Wilbur the pig establishes a form of fame that saves his life (reputation equity) through his ability to befriend others (relationship equity); the J.D. Salinger heroine Franny Glass, in his classic book Franny and Zooey, develops a kind of emotional and spiritual depth (capability equity). The message of these stories to the reader is, “You can do it, too.”

Equity must be protected, however. Stories about sustainability are often tales of long-lived dynasties like the Rothschilds, the Kennedys, or the Rockefellers — who continually build on their holdings. But there are many cautionary tales about ne’er-do-wells or hapless types who lose their sustainable position. Just as a family fortune can be completely dissipated, “shirtsleeves to shirtsleeves in three generations,” nonfinancial equity will erode if it is not well managed. Once it is drawn down past the threshold of sustainability, it can vanish with unexpected speed.

Rhythms of Growth
Organizations should help employees accumulate a variety of equity types, not just financial equity. By doing this, organizations could cement loyalty, align people with the purpose of the enterprise, and build a stronger company. In the absence of that organizational support, we can still build equity for ourselves and lead a rich, rewarding life in the workplace, whether or not we are part of the Core Group.

The reason Frederick, the young electronics engineer, got into so much trouble was this: He didn’t have enough different kinds of equity to match the complexity of his job. It’s not just that he didn’t have stock options; those would (at his level) merely have been a symbol of future potential. They would have helped, but they wouldn’t have been sufficient.

At first glance, rainmaking equity was unnecessary for him; the budget was set and funding allocated from above. In reality, however, the ability to raise more money would have greatly increased Frederick’s options (and the team’s). Reputation equity would have helped even more. Any new team leader supervising a major development project needs a reputation for high competence and deep creativity. Frederick lacked this. At minimum, a presentation of the rationale for his approach would have made a difference. Even if people at the top didn’t attend, the presentation would have made them aware of Frederick’s contribution and foresight.

Relationship equity was one of the most important components missing from Frederick’s portfolio. He needed strategic power to maneuver through the infighting among his various bosses, to get sponsorship for his new approach, and to provide “air cover” for his team. Frederick had excellent relationships on a peer level and with suppliers. But his lack of good relationships with those up in the hierarchy was a crippling factor. There was no one he could go to for candid counsel or perspective.

In retrospect, Frederick’s project looks like one that should have been tackled only by someone with a fair amount of organizational equity. People like him often are invited to take on roles and projects that look like a one-way ticket to the top. They are told, in essence, “You are free to fail,” and, because others assume they will fail, the risks seem manageable. But without an organizational equity portfolio, barely visible roadblocks are raised; people come in and micromanage; rumors of incompetence spread. The only way to deal with this is to have accumulated enough organizational equity, of various sorts, that you can protect yourself.

Although all equity growth is compounded, different forms of equity have different rhythms for growth. Money accumulates gradually, with a smooth exponential curve of steady mathematical advancement. Skills and capabilities accumulate through a kind of punctuated equilibrium; the innovative organizational psychologist Elliot Jaques, who died in March, demonstrated that the human ability to deal with complexity crosses a cognitive threshold every 15 years. (See “Elliot Jaques Levels with You,” by Art Kleiner, s+b, First Quarter 2001.) Have you ever suddenly realized that you’re routinely doing complex tasks that flummoxed you a few years ago? That’s what it feels like to cross a cognitive threshold. Reputation’s curve seems to advance with accelerated momentum and then come to sudden stops, with no clear cue about when it will start up again. Only those who seize the moment when opportunity strikes develop rainmaking equity.

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