Newsletter October 2007

Competitive advantage from better interactions
(McKinsey Quarterly, 02/2006)

In a recent article, Scott C. Beardsley, Bradford C. Johnson and James M. Manyika present research results that show that facilitating interaction between employees has a significant impact on companies‘ profits.

A large part of the workforce in developed countries does primarily tacit work (e.g. 45% in the UK and 37% in Germany). In most cases this comprises the staff with the highest salaries. Traditional ways to improve efficiency usually do not achieve much in this area. On the contrary, high levels of standardization often reduce performance, when creativity or bespoke approaches towards individual customers are required.

An important way to boost staff performance in tacit jobs, is to improve quantity and quality of interaction amongst employees as well as between employees and external partners or customers. Some measures to achieve this are:

• Giving employees more leeway to develop and share ideas (e.g.: Google allows staff to spend a certain amount of time to develop their own ideas for new services.)
• Reward policies must encourage the sharing of knowledge. In reality they often punish it.
• Performance management and personnel development have to be aligned with the collaborative way of working
• Barriers to communication in the structure have to be torn down
• Different KPIs may have to be measured
• Probably the most important and difficult part will be to establish a culture that encourages interaction while still being performance oriented
• Technology such as collaborative software, blogs, wikis, PDAs, etc. can be applied to support communication.

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