Learning to Flow

New science of water for life, new model for business Adrian Ho

The importance of acting

The ancient Chinese philosopher Lao Tzu said: “The highest form of goodness is like water. Water knows how to benefit all things without striving with them.”

Water is the source of life, and also supports all life. This idea is at once both beautiful and tragic; as there are so many things upon which life depend, but so few that truly support life.

Take for example business where most of my time is spent. No one would argue that business supports life, although in some way all life depends on it, or is affected by it. However, just as the new science of water is leading the way towards science that is more connected to the real world and more connected to the human experience; new models and processes are emerging within business designed to create similar outcomes. So is business becoming more like water? Is business learning how to flow? And could it, one day, support more of life?

I began thinking about these questions seven years ago when I co-founded Zeus Jones. After having spent my entire career within the traditional advertising industry, I became disillusioned. Not purely by the practice of advertising; but by the fundamental structures upon which advertising is based. Even to this day, most of the advertising industry is still built around a framework developed in 1898 called AIDA (attention, interest, desire, action, on the part of the customer).  In short, AIDA proposes that we change our behaviour only after we have first, become aware of something, second, become interested in it and third, start to want it. AIDA is the reason that advertisers find it necessary to bombard you with the same message over and over and over again, because it is only these kinds of repetition that will make you do what they want. It’s fair to say that there are some things that may work this way, but that’s not true for the vast majority of decisions we make in life. As early as 1957, MIT psychologist Leon Festinger identified ‘cognitive dissonance,’ a tendency for people to align their thoughts and beliefs to reduce conflict with their actions [2]. Inherent in this idea is the realisation that behaviour changes precede attitudinal changes, and not the other way around. Not long afterwards, economist Albert Hirschman proposed [3] using cognitive dissonance as a strategy for changing people’s attitudes. The best way to create a more modern-thinking populace, he suggested, are ‘inducement mechanisms’ such as creating more modern behaviours that are more effective than propaganda or financial incentives.

These ideas were largely ignored by the advertising industry, but in recent years evidence that behaviour change drives attitude change has become overwhelming and impossible to ignore. My favourite example is Facebook, which did not ask its billion users to think about joining; instead it simply created an application that rewarded the behaviour it wanted to create. In fact, it’s clear that most of the people who use Facebook would be better off having thought about it first, but Facebook has not only changed our behaviour, it has also changed, profoundly, the way we think about friendship, communication, sharing and privacy.

This is one of the reasons we started Zeus Jones. Our business is based on the very simple observation that companies are defined by the things they do, rather than the things they say. That making people like your company’s products or services requires doing things that make your products or services better, not just advertising them. We believe the experiences one has with a company or the things that other people say about their experiences are far more important than anything companies say about themselves.

The actions of business are shaped by the tools we use; the tools we use are shaped by the philosophies we hold

As a new company, it was clear we needed to find new models for our work because the tools of the advertising industry are designed to help companies say things to people, not do things for people. Fortunately John Grant, who runs a sustainability strategy and innovation company, had been thinking along the same lines. He proposed that companies could think about their activities as molecules, a collection of coherent products, services and experiences designed to do a variety of useful things for lots of different people [4]. It stood in stark contrast to the existing models at the time that advocated saying the same thing to everyone. John’s model also raised interesting questions. If success depends upon making great products and providing useful services for people rather than creating effective advertising; what are the factors that lead to companies being more successful?

In fact, these questions had already been answered. A study from 1980 discovered a statistical linkage between employee satisfaction and customer satisfaction within the banking industry [5]. In 2002, another study confirmed this relationship and showed that customer satisfaction is directly correlated with financial performance [6]. More surprisingly however, this same study also found that employee satisfaction is directly tied to company profits even when the employees have no interaction with customers. Empirical evidence for the same relationship has been published more recently.

Employee satisfaction a tangible measure of success

Parnassus investments created a mutual fund based on Fortune Magazine’s 100 best companies to work for. Since its creation in 2005, it has delivered an average of 70 % higher returns than the Standard & Poor’s Index [7]. In short, companies that want to outperform their competition are better served by investing in making their employees happier and more satisfied than investing in expensive advertising campaigns.

In hindsight, none of this seems terribly insightful, yet questions like these had not been widely debated within the business world. Employee satisfaction was considered a cost of doing business, rather than a competitive advantage. However, as evidence grew that employee satisfaction is a determining factor in profitability; the question that then followed was how to increase employee satisfaction?

The answer is not simply to pay them more. In fact, a famous study by Daniel Kahneman and Angus Deaton at Princeton University shows that employee happiness starts to plateau at salaries of around $40 ooo a year and levels off at around $70 000 a year [8]. Dan Ariely at Duke University studied the effect of large bonuses right before the financial collapse in 2008.  He discovered that paying people more and giving them bigger bonuses actually led to them performing worse on most of the tasks you would typically associate with white collar work. Indeed, the size of the salary and bonuses were inversely proportional to the quality of work [9]! No, money does not lead to better employee satisfaction. Instead study after study has shown that increased employee satisfaction actually boils down to two simple factors: giving people jobs with meaning or a sense of purpose, and giving them autonomy and the ability to pursue that purpose in their own way.

Businesses can be very efficient and nimble in the pursuit of higher profits, which is why studies like these are leading to fairly dramatic changes. Within the last few years, a large number of companies have begun or completed work on defining their purpose. Rather than simply describing what they do, or how they do it; the role of the purpose is to answer why? Companies like Google, whose purpose states: “To organise the world’s information and make it universally accessible,” have set a bigger, more inspiring and more meaningful goal for their employees than simply making money. Yet I believe they have also succeeded because they have set a goal that clearly benefits customers and society as well.

Many companies have stopped there, but some, more progressive companies are taking matters further. Along with defining a purpose, they are also creating the conditions necessary for employees to fulfil the purpose in their own individual ways. In a number of companies, traditional corporate hierarchies that centralise control within one small group of people are dissolving and giving way to flatter, more democratic structures.

We confronted this within our own company. We are small and have always adhered to the idea that everybody is equal. However, as we grew to around 40 people, we started to wonder whether we needed more formal structures in place to actually run the business. We held a meeting of all employees to discuss it and unanimously they rejected formal hierarchy. Instead, several groups proposed a different solution we call Project Leads.

One problem of traditional management is that it’s rigid and fixed; roles are created and then set in stone, regardless of the situation. People are promoted by people above them, yet given authority over people ‘beneath’ them. These errors are compounded by the fact that promotions always reward work that happened in the past, which is no guarantee of success in the future. Our solution was to make management temporary and peer-nominated. For any given project, fellow workers decide who takes the lead. In our model, leaders are responsible for the welfare of the team, leadership does not grant authority. After the project is done (or even at the same time as that project is underway), the project leader takes on another role within a different team.

Similar models have taken root within companies in a variety of other industries. One example is Valve software, a maker of some of the world’s most popular video games, a 400-person company that runs entirely without management. It is so fluid that the desks actually have wheels on them. People are not required to work on specific projects; instead if you like a project, you wheel your desk over to join that project team. If you don’t like that project you join another one, or if you have an idea for another project you must simply convince enough other people to form another team. The CEO does have a role. Apparently newcomers are sometimes unwilling to wheel their own desks and so he has been known to come and push it for them [10].

Valve runs an incredibly successful business, and they are not alone. Far removed from the ‘new economy,’ a tomato processing company called Morning Star have operated for 20 years with absolutely no management. Instead, people write contracts to their peers and are held accountable by each other. Morning Star isn’t just the fastest growing tomato processor in the world it’s one of the fastest growing companies in the world [11].  General Electric has recently reinvigorated a formerly closed manufacturing facility in Louisville, Kentucky. Using a version of lean management, American workers were able to produce a washing machine part in the US more cheaply than it could be made in China. As a result, GE actually decided to move more manufacturing back to the United States [12]. The benefits of these kinds of management structures are not just economic. Along with competitive advantages, there are also significant health benefits that result from giving employees greater purpose and autonomy. A researcher at York University in Canada has found that meaningful work correlates highly with increased physical health among employees [13]. This, in turn, lowers health care costs making companies who adopt these kinds of structures even more competitive.

The dissolution of traditional structures is happening both inside and outside companies

The decline of traditional advertising is not just responsible for increased fluidity inside companies; it is also reshaping the way companies interact with their customers and with each other. A recent study by Neilson Global Trust in Advertising Survey shows that recommendations from people you know are twice as effective as any other type of advertising in terms of determining whether you buy a company’s products or services [14]. As a result, some of the most progressive companies aren’t simply committing themselves towards delivering better service. Instead, they are actually bringing customers into their businesses to collaborate in a variety of different ways.

The Danish company Lego was among the first to embrace this idea. Cuusoo is a web site that lets Lego fans upload their designs to see if other people are interested in them [15]. If a design gets more than 10 000 votes, Lego will produce it as a new kit and give you a share of the sales. OK Cupid is a dating service that has built an entire business around customer participation [16]. The service is free and fuelled by user data gleaned as members go about the business of attracting the opposite sex. For example, OK Cupid learnt that a good way to find out if your date is willing to have sex on the first date is to ask “do you like the taste of beer?” This is because both women and men who like beer are also far more likely to have sex on their first date. OK Cupid shares tips like these with its members, helping them become more effective. Instead of traditional marketing, they simply write blog posts about the mating habits of people, which are widely read and widely shared. OK Cupid has created a sustainable ecosystem that benefits all parties.

Another business built around customers is Etsy, a market place for arts and crafts [17]. They let artists and crafters build online stores to promote and sell their wares. Etsy spend their own marketing budget on helping their members become better at selling their products rather than promoting themselves. Etsy also negotiate commissions from other companies, which give their members exposure to larger budgets and larger audiences. Etsy very literally help members become better artists. Etsy prove it’s possible to create a business that is aligned with customers’ interests rather than a business that simply benefits from customers’ interests.

The shift in customer relationships is also leading to a shift in the way businesses view competitors and competition. InnoCentive is a website where companies like NASA, Eli Lilly and Proctor and Gamble share technical knowledge [18]. Engineers from these companies post problems they can’t solve and invite engineers from other companies to suggest solutions. Successful solutions are made available to all participants giving everyone equal access to any innovation. The website GreenXchange is where companies like Nike, Best Buy and others publish details of their innovation on sustainability. The goal of GreenXchange is to [19] “accelerate and scale sustainability-innovation through sharing intellectual property assets.” Member companies realize that sustainability innovation is too valuable to keep to themselves, and are committed to helping more companies move forwards through making it available. Even hardened competitors like BMW and Toyota are collaborating. They’ve recently announced plans to jointly develop a fuel cell to speed development of hydrogen-powered cars [20].

In each of the above examples, companies are collaborating around a shared goal rather than competing for a finite prize. These types of arrangements have become so popular and widespread that Jean-Charles Rochet, a professor of mathematics and Jean Tirole a professor of economics both at the Toulouse School of Economics named them two-sided or multisided markets in 2002 [21]. They have discovered that multisided markets have very different properties from typical, one-sided or transaction oriented markets. Multisided markets build relationships and create an ecosystem that delivers value to all sides. They promote cooperation rather than competition and, as a result, they scale through network effects rather than growing linearly. Multi-sided markets also deliver much better efficiency and much lower costs to companies in return for them surrendering some control [22]. Multi-sided markets have become one of the hottest fields of study for economists. And new businesses built around multi-sided markets are starting daily. Apparently, start-ups that build their business around a multi-sided market are much more likely to get funded by venture capitalists in Silicon Valley [23].

Why does it matter?

In his famous 1963 ‘Obedience to Authority’ experiment, Stanley Milgram discovered that we tend to follow instructions given to us even when they conflict with our personal morals or ethics [24]. In his experiment, he asked study participants to give people in another room increasingly higher and in some cases, lethal electric shocks as punishment for answering questions incorrectly.  Participants were unaware, of course, that the machine wasn’t hooked up and continued to obey even as they heard the people in the other room scream or beg for mercy. However, Milgram also discovered that following orders had a profound impact upon the participants themselves. In his report, Milgram wrote [24]: “I observed a mature and initially poised businessman enter the laboratory smiling and confident. Within 20 minutes he was reduced to a twitching, stuttering wreck, who was rapidly approaching a point of nervous collapse. At one point he pushed his fist into his forehead and muttered: “Oh God, let’s stop it.” And yet he continued to respond to every word of the experimenter, and obeyed to the end.”

But it doesn’t take an experiment as dramatic as that to make the point that our work shapes us. Edward de Bono is a creativity expert famous for developing the concept of lateral thinking or the ability to use creativity to escape mental traps. Even he believes that our jobs always change us, and that despite our best intentions we never change the job [25].

Geoffrey West, a physicist who has looked at the mathematics of cities, wondered why cities are so resilient while companies are not. West discovered that cities usage of resources scales sub-linearly; the larger they grow the more efficient they become. In contrast, their production scales super-linearly so as they get bigger they produce more than their fair share. Companies grow in the opposite way; they require more resources as they get larger and they produce less. The big difference West discovered is that cities are networks where control is decentralised and spread across many different groups whereas control within companies is still largely centralised [26].

If Milgram and West are right, then making work more human can make us more human. Making companies less hierarchical and more decentralised can help them endure and survive. And creating ecosystems of value can enable business to scale more efficiently not less.

And if, as I have argued, profit is truly aligned with giving people meaningful work and letting them work in more human ways; if business is better served by creating relationships and partnerships, by enabling more connections to their customers and to each other; then perhaps business is learning to flow and may, one day, support more of the life that come into contact with it.

Adrian Ho is a founding partner of Zeus Jones, an innovative agency that has turned advertising on its head; this article is based on his talk on World Water Day 22 March 2013 during the Colours of Water art/science/music festival in London, UK (see https://www.i-sis.org.uk/coloursofwater/)

Article first published 05/06/13

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