Covid-19 – Escondido Framework

What happens to organisational “dark matter” when everything moves on-line?

Much of my working life moved on-line when Covid-19 hit. From time to time, I still go into the office although it feels as though a neutron bomb has hit: the building is there, but it is largely empty and most of those normally there are working from home. All the meetings that were conducted face to face before mid March now take place on video conferencing platforms (although half the time my colleagues have cameras switched off or their on-screen presence has frozen). Research appears to suggests that the productivity of most of the people now working remotely is higher than before. I miss my commute because it provided a welcome opportunity for exercise and included a delightful bike ride along the Grand Union Canal, but I am sure that I am in a small minority.

I miss the serendipitous conversations that take place in the corridor, making coffee, in the margins of formal meetings, and in the course of visits that I make as chairman to the front-line units and staff of my organisation. I have recruited a couple of new colleagues during the Covid-19 lockdown and we have had to manage their induction remotely, which clearly has its drawbacks. But other than these examples, I don’t get the feeling that the way that we do business has suffered much so far. However, is this sustainable?

David Robson has written an article in New Scientist[1], suggesting that “the coronavirus pandemic may be dismantling your social network without your realising it”. This echoes a concern of mine that the way most of us, and most organisations, have coped through the changes enforced Covid-19 has been only been possible as a result of the accumulated investment in relationships built up face-to-face. My board know each other well, know how to interpret each other’s contributions, will make allowances for each other and can generally anticipate how others will react to what they have to say. This has helped carry us through the past five months and will continue to assist through the next few months as, we all hope, we emerge from the crisis. This will apply to all sorts of established relationships around any organisation, will underpin day to day conversations and routine business, and will inform the diplomacy and political manoeuvring around the more tricky transactions. Assets on our balance sheet are liable to decay and, in our accounts for our business, we apply depreciation to them to reflect this. The intangible assets that are our social capital and which have carried us through new pattern of remote working are no different.

Robson’s article led me to a New York Times interview with Satya Nadella (personally heavily invested in video-conferencing, and consequently other people’s remote working, as CEO of the organisation that owns MS Teams and Skype). “Mr. Nadella said that raw productivity stats for many of Microsoft’s workers have gone up, but that isn’t something to ‘overcelebrate.’ More meetings start and end on time, but ‘what I miss is when you walk into a physical meeting, you are talking to the person that is next to you, you’re able to connect with them for the two minutes before and after.’ That’s tough to replicate virtually, as are other soft skills crucial to managing and mentoring.”[2]

Robson continues his article by summarising a wide range of research around social contact, and highlighting its value to us in terms of mental wellbeing and importance dimensions such as trust. In a sidebar to his main article, he quotes Peter Drucker writing in 1993 “It is now infinitely easier, cheaper and faster to do what the 19^th century could not do: move information, and with it office work, to where the people are. The tools to do so are already here: the telephone, two-way video, electronic mail, the fax machine, the personal computer, the modem, and so on.” Robson notes that it has taken the pandemic for people to realise that they can work with less face time and discusses why it has taken a crisis to realise the potential for more people to work remotely. But while he concludes that “the relative success of new ways of working in the pandemic would certainly suggest that we can get by with less face time” he acknowledges that it would be unwise to scrap it entirely.

I worked remotely for much of the 1990s (with a dial up modem and Compuserve email address that consisted of numbers alone). Consequently, the revelations about the productivity of people working from home come as no surprise. However, I was working as a consultant and on private equity projects at the time. The work from home was interspersed with face to face activity with clients, selling projects and ideas, negotiating deals and persuading investors to back me. I was operating on my own or in small teams rather than a large organisation that was creating a greater value than could be achieved by a series of discrete market transactions and with the benefit of what I have described elsewhere as organisational “Dark Matter”. Having moved in and out of varied working arrangements and organisations differing in size over the past forty years, I know the importance of face to face contact in building relationships that are strong enough to be effectively maintained at a distance.

The large, global consultancy firm where I worked in the early 1980s employed a variety of devices to build relationships within the local office and the world-wide firm: consultants were expected to return to the office on a Friday to lunch together and receive a short presentation about a colleague’s project and piece of training; at each stage in your career development you attended residential courses with your peer group; practice groups would hold regional conferences to share learning; and the international partner group would meet for an annual conference. All this contributed to building a shared set of values, common approaches to solving client problems, and the ability to work remotely while remaining part of the firm.

It is important to recognise the corollary of Robson’s thesis: with remote working there is a risk that the quality of relationships will decay over time, particularly if the context in which the relationships were developed changes, if you don’t make this sort of investment. The “new normal” may involve much more remote working, but organisations need to recognise that the success of this approach over the past five months has been made possible by years of investment in social capital by having people working together previously. They will need to invest in “maintenance social capital” by getting people to getting people together sufficiently frequently to address the depreciation in this asset if they want to continue remote working in the longer term.

[1] New Scientist, 20th August 2020, pp32-36. “Missed Connections”

[2] New York Times, Dealbook Newsletter, 14^th May 2020

Shifting the dial on purposeful business: what can we learn from crises, past and present, in solving the problems of people and planet?

The fifth and final session of the British Academy Future of the Corporation – Purpose Summit was a disappointment after some of the high points of the earlier sessions, but was rescued by an inspiring closing contribution from Mohamed Amersi, whose Amersi Foundation is one of the principal sponsors of the Future of the Corporation programme.

The essential shortcoming of the session was that it failed to address its intended subject or answer the question set in its title. I was left with the impression that, particularly with the backdrop of the Covid-19 pandemic, the organisers felt that they would be failing to notice the elephant taking up most of the room if they didn’t address business purpose in times of crisis. As keynote speaker, Mark Carney tried to combine his experience as a central banker through the financial crisis and its aftermath with his appointment as UN Special Envoy for Climate Action and Finance. He made the case for a strategic reset to deliver “Net Zero” to address climate change, argued for corporations to be required to disclose how they contribute towards reducing carbon emissions, but did not manage to articulate how this relates corporate purpose. In Escondido Framework terms, the appetite of investors and consumers to do business with organisations that are addressing climate change and the restrictions and/or incentives provided by governments reduce carbon emissions shape the market interfaces of the firm, and the interest of the firm in its own sustainability should encourage it to behave sustainably, but they don’t change the corporate purpose.

Following Carney’s contribution, the session moved onto a panel discussion. As CEO of SSE, an electricity utility, Alistair Phillips-Davies had an easy job relating the changes made to his company’s corporate purpose in relation to the climate crisis. He further argued that clarity of corporate purpose helped everyone in his company respond appropriately to the current Covid-19 crisis, albeit that this sounded like a general statement about how it was good for the company’s reputation to be seen to behave responsibly when this latest crisis hit. The session then wandered, as it seemed unclear whether the discussion should be about how companies respond to crises, in particular whether they should be holistic and strategic or driven by short term financial optimisation, or whether companies should become principals in addressing the crises themselves, which seemed to be the line adopted by Ngaire Wood of the Blatavnik School.

I was left frustrated as Colin Mayer tried to sum up both this discussion and the material covered over the three days of the summit, ultimately feeling that we were left with a laundry list rather than an understanding of purpose, and that this final session had left the impression that the purpose of the organisation had been reduced to steering the organisation through the crisis. This may be consistent with the thesis that an organisation can be viewed as an organism whose purpose is to survive, but it falls short of the Escondido Framework understanding the purpose of the organisation is to create value for society than cannot be created through a set of atomised transactions.

Mohamed Amersi was given a few minutes to wrap up the summit and, for me, saved the day. He referred back to the 1850 charter of his family’s business which stated its duty to its “superior creator”, suppliers, those served [ie customers], the state, shareholders, surroundings and society. He described the challenges we face today as planetary sustainability, inequity and technology. He spoke of modern society by way of an analogy with an apartment block containing a flooded basement, crowded middle floors and a growing penthouse, but with a broken elevator. He despaired of top-down organisations in which no-one is actually in control and argued that is up to everyone to act – “If not you, who? If not now, when?”

Lockdown – through the Escondido lens

We are in lockdown with Covid-19. Large parts of the economy are in suspended animation. Other businesses are operating on a hugely reduced scale. Others have recognised that their sales have dried up but have redeployed that assets and staff to help address the pandemic. The Chancellor of the Exchequer has become the “employer of last resort”, funding 80% of staff wages as an inducement for companies to keep people on their payrolls.

How should we interpret the reshaping of businesses through the lens of the Escondido Framework? In particular, what does it do those market interfaces that define the firm as visualised in a simple form by the Reuleaux Tetrahedron?

Are companies in the same business now that they were last month, before lockdown? In some cases, it easy to say that, at least temporarily, they are: the Lymington sail maker who has turned over his computer fabric cutting capability to turning out fabric pieces for others to sew up as scrubs for NHS front line staff and the university engineering departments that have deployed their 3D printers to make components for surgical masks. These companies have moved from one market into completely different one. Their staff, capital, and suppliers are relatively unchanged, but they have exchanged the customer market with which they usually interface with a completely different one.

Others have been transformed into agents of the state: temporary distributors of transfers by a government that has banned their businesses (particularly those in consumer services: retail, hospitality, entertainment) from operating. In their cases, the regulatory interface (not displayed in the 4 market interfaces of the Reuleaux Tetrahedron that describes the simplest companies, but has to be imagined in a multi-dimensional context) has moved inwards to the degree that the company is no longer creating value other than as a channel for transfer payments.

Another way of looking at the interpretation is that the company exists only in a shadow form, some ghost of what the company could become once again. I suspect there is a quantum analogy here – the locked down company with furloughed staff as Schodinger’s Cat. Certainly, the physical assets remain present, the staff remain employed, the wiring of the corporate structure remains in place, and the Dark Matter of the soft things such as relationships, corporate memory, social glue, shared assumptions, implicit operational and communication protocols continue – albeit that they may be vulnerable the longer that the lockdown continues. Zoom and its competitors keep some of the Dark Matter alive. The efforts that the investor, directors, and managers make in supporting and communicating with their staff will help, but the longer the uncertainty remains, or if the companies scrimp on their effort and investment in maintain this soft stuff, the greater the risk that the Dark Matter will leak away.