Yes, but does LO work? LO19073

T.J. Elliott (tjell@IDT.NET)
Fri, 04 Sep 1998 08:36:44 -0400

Replying to LO19065 --

I apologize for the length of this post but I am responding to several
answers to my post on measures of LO performance. It was gratifying to get
responses even if they are so disapproving ;-)

Those responses to a post of mine reporting on an informal investigation
of LO performance have decried the use of stock price or bottom line as a
measure. Unless I am missing something, I have not seen any specific
alternative suggestions. Additionally, the context of the original point
is now getting blurred. This thread started with some questions as to
whether LO worked. I cited Kleiner, Senge, et al from the Fifth Discipline
Fieldbook:

"The rationale for any strategy for building a LO revolves around the
premise that such organizations will produce dramatically improved
results, compared to more traditional organizations."

In my reading, these authors did not specifically suggest measures for
those results but implicit in their comments and subsequent examples is
the idea that the companies are more productive and better places to work.
In our quite unscientific study, we chose stock price because that measure
for all of its flaws is favored by the governing boards of so many
companies as a measure of results. I agree with the observer who noted
that stock price is flawed since it measures the ability to raise capital
and may not have any correlation with p & l, with EVA or other measures.
Accordingly, we wrote in our newsletter article:

"Focusing on the concerns of commerce, we selected stock price improvement
and ability to attract and retain top talent as our benchmarks. Our two
measures were performance against the S&P 500 for the last 12 month period
(3/1/97 to 2/27/98) and inclusion in the 1998 listing of The 100 Best
Companies to Work for in America. There are many, many scales that are
arguably more important or reliable yardsticks but these address essential
questions: Are the companies making any money? Does anybody want to work
there?" (italics added)

[Host's Note: And italics removed by the email system. ...Rick]
...snip...

"The mixed performance of our group does not suggest that the learning
programs they employ are a wasted effort. That would prove as facile as
the current fascination with LOs. What it does prove is that learning has
to be pursued on its own merits in the context of a particular business
reality. The need, in our humble opinion, is to maintain a creative
tension between the demands of the market and the building of both
learning and the capacity to learn. We should acknowledge that LO methods
and philosophies espoused are not yet a "sure thing." We should beware of
any formulae for learning, even while we test them out in our own
circumstances. We should also avoid falling so in love with the passion of
the process involved in many LO initiatives that we lose track of the
essential question. Do learning initiatives support survival and growth
for companies? "

The responses to this post while quick to condemn stock price have lacked
two elements in my reading. They fail to address the perspectives of
others involved in the process. What would a line manager choose as a
measure of whether LOs work? A major stockholder? A union official?
Secondly, they do not propose specific measures.

For example, Cowan, Keith wrote:

> The very essence of LO is that its is an adaptive strategy for
> survival. Any attempt to measure it in current period bottom line results
> would fail. This is not to say that there are not measures that can be
> developed to assess whether LO behaviour is present in an organization. In
> fact, without those, the correlation to success will always be subjective,
> and open to debate as to the real root causes.
>
> So we need to be able to categorize an organization objectively as a LO
> and then track a group of LOs against a control goup of non- LOs to
> establish the answer to the question. This would have to happen over an
> extended period of time. Naturally the control group must be unbiassed for
> there to be credibility with the results.

But Keith does not suggest the measures. Luis Colorado's original response
to my post noted in part:

>Thinking in an LO as a live organism, failing and learning from those
>errors, a short term measure like the stock market performance in
>the last months may be misleading. Going further, the time period
>needed to have a significant metric should be at very least the time
>needed by the LO to learn and act accordingly to the accumulated
>knowledge. As it would be unreasonable to rank any organization
>for the last day's stock value, it makes no sense to rate a LO for a
>too short period of time.

But those metrics are not identified. Tom Stewart in 'Intellectual
Capital' suggests numerous measures for such entities: market to book
ratios, Tobins Q (the market value of an asset to its replacement value),
calculated intangible value (the excess return of a company's return on
assets versus the industry average after taxes), percentage of sales
attributable to new products or services that came out of intellectual
capital, employee attitudes, tenure & turnover, working capital turns,
etc. I am not espousing any one of these just as I was not espousing
stock price. However, I do think the original posts on this thread pointed
out a deficit. We do not speak specifically as to how we discern the
efficacy of what we do in encouraging and assisting the building of LOs.
My own experience is that if we don't develop such measures with those
responsible internally for the LO effort, then eventually someone else
will impose measures that will prove as arbitrary and disadvantageous as
stock price.

-- 

"T.J. Elliott" <tjell@IDT.NET>

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