The Collaboration Wave

From Human Capital to Relationship Management

Lewis J. Perelman

Introduction

Author and editor Tom Stewart offered the “modest proposal,” in his Fortune column in
early 1996, that the time had come for companies to “blow up” their Human Resources
departments. Stewart concluded:

HUMAN RESOURCES has come to the proverbial fork in the road. One path leads
to a highly automated employee-services operation handling what used to be
paperwork in a ragingly efficient way. This function becomes little more than a
gateway to outside suppliers, impersonal in one sense but highly amenable to
supporting personalized, cafeteria-style services. The other leads straight to the
CEO's office.
Stewart cited studies showing that the majority of HR departments’ time and staff were
occupied in paper-intensive ‘administrivia’ for such elementary functions as payroll,
benefits, and recruiting. And, he argued, such tasks clearly could be handled far more
productively with software, online services, and outsourcing.

At the time, HR staffers were inflamed by Stewart’s broadside. The Society for Human
Resource Management prompted its 80,000 members to flood Fortune with protest letters.

Five years later, passions have cooled. As a recent study from the Knowledge Capital
1
Group shows, a substantial market has developed for the sorts of software, online, and
outsource solutions Stewart advocated. InternetWeek has reported that, in some cases,
HR departments actually are pushing deployment of such solutions ahead of their
suppliers. A variety of ‘e-learning’ and related ‘knowledge management’ solutions similarly
are in growing demand.

HR professionals now seem more likely at least publicly to advocate automating,

offloading, and downsizing many traditional, routine administrative functions. Some even
may boast of reducing overhead and shrinking HR staff headcount. Some of the more
enterprising HR leaders argue that their professional status is enhanced by being less
labor-intensive, less bureaucratic, and more ‘strategic.’ Today, more HR professionals
would rather be known as ‘performance consultants’ than simply personnel administrators.
And trainers similarly like more often to be seen as the ‘guide on the side’ rather than the
‘sage on the stage.’

1
Britton Manasc, William S. Hopkins, and Lewis J. Perelman, KCG MarketView: Human Capital Management
Solutions. Austin, TX: Knowledge Capital Group, Inc., 2001.

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 Nevertheless, these trends so far add up to less than a revolution, or even a
transformation of business-as-usual. Across the business landscape, the practices and
roles of HCM are yet highly uneven. Tom Stewart says that today, while the HR
community is more likely to invite him to lecture than to attack him as a bogeyman, “there
are still a lot of bureaucratic HR departments and staff out there.”

David Owens, chief knowledge officer at The Saint Paul Companies, feels that the HR
group in his company has been ahead of the pack in becoming both more efficient and
more strategic. Every year, SPC does a detailed performance evaluation of some 2,000 of
its managers worldwide. Two years ago, Owens notes, that was still a time-consuming,
often exhausting manual process; now “it is all done online.”

Moreover, Owens reports that the HR leadership at The Saint Paul Companies works
closely with the CEO, collaborates effectively with the information technology group, and
leads a ‘knowledge management’ effort that emphasizes collaborative learning. In all
these regards, however, Owens admits that SPC is still “unusual.”

Offloading 'administrivia' and downsizing HR staff may provide the potential for
remaining HR pros to take on a more strategic role. However, Sarah Bridges, a
Minneapolis psychologist with broad experience in recruiting and HR management for
Fortune 500 companies, cautions that not all HR staffers necessarily are prepared or even
inclined to perform a more strategic function. Also, Bridges warns that rapid payback of
HR automation is not guaranteed:
Depending on the particular company, and
the vendors, there may be substantial
What still seem scarce are solutions that
costs in the transition to a new system of
effectively change the shape of organizational HR administration.
designs, and that fundamentally alter how
people work with other people. The contending forces of social innovation
and bureaucratic inertia behind these
short-range observations have long historical roots. The hope that technology can liberate
human potential and energize social collaboration has been continually disappointed by
the stubborn persistence of authoritarian control.

The HCM solutions in today’s market so far seem to be lubricating the machinery of
organizational management to an extent that ranges from trivial to productive. What still
seem scarce are solutions that effectively change the shape of organizational designs,
and that fundamentally alter how people work with other people.

The basic question, as we ponder the future of this field, is whether a real structural
breakthrough may be, finally, on the horizon. To answer that, some historical perspective
may help.

Yesterday and today: the Inventory Paradigm and its discontents

In 1953, John Diebold, a new MBA graduate of the Harvard Business School, published
the results of his studies of the recent transformation of American industry in a book
entitled Automation—the first introduction of that term into popular use. Today, the term
‘automation’ is so shopworn that it is hard to recall that when Diebold coined it a full half-
century ago, it was ‘the next big thing.’

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 Nevertheless, a current reader of Diebold’s book may find much of its central message
surprisingly—and perhaps sadly—familiar. Diebold warned that industrial leaders and the
public generally were overly entranced with the startling powers of computer-based control
devices and systems. “Paradoxically,” Diebold wrote, “the current obsession with the
novelty and spectacular performance of automatic control diverts attention from the
problems of their application to industry.”

Introducing computers to factories and offices might be necessary, Diebold cautioned, but
was not sufficient to automate a business effectively: “The full promise of the new
technology cannot be realized so long as we think solely in terms of control.”

While he understood the popular bedazzlement with advanced information technology,

Diebold argued that it was a costly mistake to think that ‘automation’ was simply about
doing the same old business more efficiently. Both in office and factory, he said, it was
critical “to avoid the mistake of decorating obsolete processes with new gadgets.”
Particularly relevant to our study of current HCM solutions, he added this: “To use the
new technology as a speedier means of preparing the same reports that are now
prepared and to treat their contents in the same way they are now treated would be a
great mistake.”

In sum, Diebold stressed that ‘automation’ was not simply a matter of doing business the
same way with more efficient technology. Rather, he urged that capturing the potential
benefits of automation really required what he called “rethinking” of whole systems:
creating new kinds of products and processes, new kinds of management and
organization, new kinds of work for a new kind of workforce, and ultimately reshaping
industries, economies, and human societies.

Bureaucracy and the machine

Humanity’s often vexing dilemmas of technology and bureaucracy are ancient. As soon as
human technology became sufficiently productive to permit civilization to take root, there
came both the opportunity and the need for people to occupy diverse roles other than
simply feeding and procreating. Specialization, organization, and some kind of
management became essential.

It’s a safe bet that as soon as communities became too big for anyone to remember
everyone, someone decided to ‘take attendance.’ Ancient civilizations from Babylon to
Egypt to China did census surveys to get information about their human inventory for one
reason or another: taxes, military conscription, or of course, labor. Throughout most of the
history of human civilization, aristocracy was the common form of socioeconomic
organization, and various forms of slavery and serfdom gave ‘human capital management’
a literal reality.
th
In the late 19 century, the sociologist Max Weber lauded bureaucracy as a more liberal
and productive alternative to aristocracy. Aristocracy gave a few persons power to
manage and control other people on the basis generally of social status and inheritance.
As Weber saw it, bureaucracy’s advantage is that it allocates authority to whoever
demonstrates the necessary competence on the basis of superior knowledge.

While Westerners tend to identify bureaucratic organization with the industrial age,
bureaucracy’s roots go back some 2,000 years earlier to the Han Dynasty of China. The

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 Han Empire replaced feudal governance with a meritocratic civil service, hierarchically
centralized in the imperial capital. Consistent with Weber’s model, the ‘mandarins’ of
China’s civil bureaucracy were recruited from the empire’s broad (male) population,
trained in special academies, and selected for office by competitive examination.

There is an important difference in the bureaucracy of ancient China and that of the
modern, Western industrial state. The knowledge required for initiation to the mandarin
bureaucracy was primarily of Confucian philosophy, whose content focused on an ethical
code aimed at maintaining a harmonious social order. But the managers of industrial
bureaucracy were empowered for their know-how—that is, knowing how to get things
done productively.

While the practice of inventorying and managing human capital may be as ancient as
Egyptian pyramid building, the concept of ‘human capital’ or ‘human resources’ or
‘personnel’ as concrete factors of production and the concept of ‘management’ as a
rational professional discipline are recent inventions of the industrial economy. Consultant
William Bridges points out that the words ‘job’ and ‘employment’ only recently took on their
th
current economic meaning. Even in the 19 century, ‘job’ or ‘employment’ referred only to
a task a person happened to be doing temporarily, rather than the current notion of a long-
term bureaucratic position that a person is hired into on the basis of some demonstrated
qualifications.

Historians mark the dawn of the modern form of bureaucracy with America’s 1883
Pendleton Act, which established a professional civil service system to replace the
increasingly corrupt system of government by political patronage. Building on practices
started in the reign of Napoleon, France also elaborated its extensive civil service system
th
in the late 19 century.

Inspired by the civil service, the idea of ‘personnel management’ as a formal discipline
th
began to infiltrate industry at the turn of the 20 century. The first corporate office of
‘employment’ was established at the B.F. Goodrich Company in 1900. Professional and
industry associations for ‘personnel administration’ soon formed.
th
Also at the beginning of the 20 century, the most renowned proponent of ‘scientific
management,’ Frederick Winslow Taylor, pioneered the management of work and workers
as a rational, technical discipline. Frank Gilbreth and his wife Lillian famously started to
measure the performance requirements of each industrial ‘job’ with stopwatch and
yardstick. These innovations promoted the redesign of jobs for maximum efficiency—as
integral components of a comprehensive production machine.

Many were delighted with the popular wealth Taylorism delivered. Many people also were
dismayed by the grueling subordination of human needs to mechanical efficiency.

Artists and social critics satirized the ‘de-skilling’ and ‘de-humanizing’ of labor that seemed
to result from the rigor of industrial processes and the cold-hearted logic of scientific
management. Filmmaker Fritz Lang envisioned humanity reduced to a slavish army of
industrial ‘robots’ in Metropolis while Charlie Chaplin’s Modern Times memorably depicted
the helpless little guy literally rendered to fit the gears of the enormous industrial gearbox.

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 Re-humanizing work

Such ambivalence about the power of technology both to liberate and to tyrannize
humanity is at least as ancient as the myth of Prometheus. The advent of the Industrial
Revolution inevitably spawned an ongoing series of Luddite rebellions against the
perceived dictatorship of the machine.

As the industrial age matured, however, a different form of counter-movement evolved,

one aimed less at overthrowing the industrial machine and more at humanizing it. Political
populism undertook to tame the excesses of industrial oligarchs with varying degrees of
government regulation. And labor unions formed to provide a balance of power between
the two arch classes of industrial bureaucracy, ‘management’ and ‘labor.’

The social contract emerging from such liberal reforms gave the ‘working class’ as a
population better compensation for their often mindless obedience to the tedious
requirements of the Taylor paradigm of industrial engineering: more job security, more pay
and fringe benefits, reduced working hours, and better protection of health and safety.
What such reforms mostly did not do was fundamentally alter the Taylorist form of process
design, or the theory of efficiency on which it was grounded.
th
By the middle of the 20 century, however, an alternative paradigm of ‘scientific
management’ gradually emerged to challenge the legitimacy of the Taylorist model on its
own grounds—productivity—but rooted
more in social science and psychology than
mechanical engineering. The engineers
themselves actually planted the seed of this
new movement with the discovery in the
1930s, in the U.S. aircraft industry, of what
they called the “experience curve.”

Profitability in aircraft manufacturing

depended greatly then (now, too) on the
ability of industrial engineers to project, from
Source: Computerworld, July 2, 2001
the cost data of a prototype, what the unit
cost of a new airplane will be once it goes
into mass production. Examining a mass of production data, engineers discovered that the
cost of producing each airplane fell steadily, along a pleasingly regular and consistent
curve, as the cumulative number of units produced grew. Even more remarkable: the
basic shape of the cost curve stayed the same no matter what particular kind of aircraft
was produced, or even whether the product was an airplane or a washing machine or a
radio.

Some management analysts went on to build prodigious consulting practices grounded

only on the quantitative implications of the experience curve. Mainly, they advised that
corporate strategy should seek the largest market share as quickly as possible, since the
experience curve assured that the company with the biggest volume of production would
have the lowest costs.

But others were more impressed with a different, human implication of the same curve:
Since, once started, the tools and process of the production system remained constant,
the only way productivity could be improving was that the people on the production line

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 must have been changing the way they work. And, since no one was ordering or training
them to do anything differently, they must have been learning from experience, and
changing the work themselves.

Inspired by the revelation of what was re-dubbed the “learning curve,” social scientists and
psychologists looked for, found, and then designed a growing body of cases showing that
more humane and democratic production designs not only made work more satisfying—
they resulted in substantially greater production and lower costs. At the same time that
Diebold was issuing his challenge to “rethink” automation, Eric Trist, Fred Emery, and
other scientists associated with the Tavistock Institute in London were developing a
counter to the Taylor theory of industrial management they called ‘sociotechnical systems
design’ (STS for short).

In parallel, W. Edwards Deming and Joseph Juran started to preach the gospel of ‘quality
control.’ Their message that companies needed to compete on product quality as well as
price fell on deaf ears in a booming America, but was taken to heart by Japanese industry.
The statistical methods Deming and Juran prescribed again flouted the Taylorist model:
They assumed that front-line workers were competent to measure and maintain product
quality. Moreover, Deming and Juran argued that the people in closest contact with the
production process had to be empowered with essential responsibility for quality control.

In a complete convolution of Taylorism, the presumption of STS, TQM, and similar mid-
century counter-movements was that front-line workers had brains, talent, and knowledge
that could greatly improve the production process, given a chance. But, to profit from this
resource, organizations needed to empower self-directed teams to participate fully in
planning and managing the production system. Gradually the idea dawned that—on the
threshold of what by the 1960s some were calling the ‘postindustrial’ economy—what
organizations really needed to manage was not human ‘resources’ or ‘capital’ but human
talent, communication, knowledge, learning, and collaboration.

Groundhog Day?

In the movie Groundhog Day, Bill Murray plays a man mysteriously trapped in a time
warp. Every morning when he wakes up, it is February 2 all over again. Repeatedly he
has to face the same events, the same problems, until he can find a solution to break the
cycle.

The history of the recurrent struggle over the last half-century to replace the Taylorist
pattern of industrial bureaucracy with a fundamentally different, more collaborative model
of human economic relationships too easily can leave us wondering if we are caught in a
similar plot. It seems that every decade or so, the same basic concepts of postindustrial
management are elaborated and reintroduced, often under a new label.

Quality control, disdained by

It seems that every decade or so, the same
basic concepts of postindustrial management
are elaborated and reintroduced, often under a
new label.
American management in the 50s,
retakes America by storm as Total
Quality Management in the 80s. The
fascination with TQM wears off after a
few years, is echoed in a passing
enthusiasm for ISO 9000, and then is
resurrected in the 90s under the

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 mantra of Six Sigma. Side roads branch off first into Benchmarking and later into a
fascination for Best Practices.

Diebold’s call in the 1950s to ‘rethink’ automation as a comprehensive system drew on the
contemporary interest in General Systems Theory. The latter led in the 1960s to Jay
Forrester’s System Dynamics modeling, which aimed to reveal why ‘complex’ systems like
corporations and cities tended ‘counterintuitively’ to resist command-and-control
management. Years later, one of Forrester’s disciples re-tuned System Dynamics as The
Fifth Discipline, which required that everyone learn “systems thinking,” which mandated
the Learning Organization, which in turn created a demand for new systems for
Organizational Learning.

After STS proved increasingly complicated to implement, Fred Emery re-launched it in

simplified form in the 1970s as Participatory Design. Empowerment, participation, and
teamwork bubbled up again in the 1980s’ search for ‘Excellence.’ When the quest for
excellence petered out in too many dry holes, STS was reincarnated once more in the
1990s as Reengineering.

But Reengineering became a widely used (or misused according to its champions) excuse
to downsize the workforce and crack the Taylor whip over the survivors. Then the urgency
for Reengineering faded in the euphoric glow of the Internet boom. To many it seemed
that the New Economy finally had arrived.

Recalling his earlier prophecy, Peter Drucker proclaimed in the past decade that this new
economy depended critically on empowered teams of knowledge workers doing
knowledge work. In rushed Knowledge Management gurus to harvest the tacit ‘intellectual
capital’ in workers’ heads and then to organize and archive it so that knowledge could be
shared with the whole company. Performance Support and Decision Support architects
would carve up the knowledge and electronically pump just enough, just in time, wherever
and whenever anyone needed it.

Finally, in the 1990s management gurus rediscovered general systems theory in the
newer, more computationally rich mathematics of Complexity and, naturally, applied the
lessons of complexity theory to organizational management. Enterprises, they said, are
complex social-technical ecosystems that require management to rethink ‘outside the box.’
The mathematics of ‘self-organizing systems’ such as schools of fish imply that workplace
teams cannot be commanded or organized but must be empowered to evolve as self-
directed communities of practice.

And so the pendulum has swung over the past five decades or more between contending
visions of the proper human relationship to the work, technology, management, and
organization of enterprise. Information technology has been entwined throughout this saga
as driving force, enabler, artifact, and sometimes nemesis.

The advice for transforming business today to meet the challenge of the information age
sounds hauntingly similar to that invoked for the automation age in the 1950s. After
reviewing this history, John Diebold was asked recently whether the lessons yet had been
absorbed, and the paradigm of business design yet had shifted. “I think,” he offered, “that
the Internet may prove, finally, to be the watershed.”

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 Perhaps so. Or is it still Groundhog Day? Whether it is or not will make an important
difference to which IT applications for the management of human talent and working
relationships succeed in the future.

Signs of breakdown and transformation

Let’s face it, no matter how sluggish bureaucracy may be to reflect it, the world has
changed in some dramatic ways since the Eisenhower Administration. The Cold War is
over—no small deal. Apartheid is gone; so are ‘Ma Bell’ and Pan Am. The political,
economic, and social roles of women are radically transformed. Tobacco is socially taboo.
The means of environmental protection may be debated but its desirability is rarely
questioned. The year 2001 hasn’t seen as much in the way of ‘space odysseys’ as
Hollywood once projected. But genetic technology today presents arguably far more
profound, unprecedented, and real challenges to the meaning of human existence.

Despite the pendulum swings of management and organization forms and reforms over
the past several decades, there’s no denying that the average workplace also has
changed tangibly since the 1950s. If a time machine could pluck a few people from typical
factories and offices of that age and drop them into similar slots in today’s world, certainly
they would notice a difference. Technology surely would dazzle them.

True, much about work and management and organization would appear quite familiar.
“There is a great dearth of design engineers capable of the advanced mathematics
necessary in much of the automatic control system work,” Diebold wrote in 1953, a
concern echoed in today’s hand wringing over perceived shortages of technical skills.

But organizational and social change would be noticeable, albeit that much would seem
more evolutionary than revolutionary. In the U.S., the social difference that probably would
most impress them would be the clearly more diverse and egalitarian workforce at all
levels. Most change in employment and the workplace likely would appear to be more in
degree than in kind: higher levels of education and training, greater and more flexible
benefits, more overt concern for employee health and family needs, broader participation
in stock ownership, greater emphasis on quality, the diminished role of unions, and
perhaps a sense of the greater globalization of markets.

As consultant Michael Hammer has pointed out, most organizations and institutions are
not designed to undertake fundamental change. If anything, they are designed to resist
basic change until they are confronted with overwhelming necessity—what The Godfather
called “an offer they can’t refuse.”

Today, the Internet bubble has burst, and what Federal Reserve Chairman Alan
Greenspan labeled “irrational exuberance” not so many months ago has been replaced by
a far more sober, even anxious mood. Oracles of brave new worlds and bold revolutions
do not seem timely. Especially when desperate investors—fed up with pampering spoiled
techno-brats and digital tycoons with signing bonuses, stock options, gold-plated perks,
and most recently, accounting sophistry—often are getting companies ‘back to basics’ with
a re-installment of ‘Chainsaw Al’ and ‘Neutron Jack’ management.

Nevertheless, the current distress itself may be symptomatic of the exhaustion and
breakdown of some conventional economic paradigms. Certainly the needs for different

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 ways of organizing work and business only have grown more urgent over the passing
decades, and may now truly be overdue. In any case, there are clear instances in the
present of some basic economic transformations that are both irreversible and irresistible.

Collaboration: theme of the decade

Napster is the poster child for the potent possibilities of new technologies to nurture both
communal and personal demands simultaneously—albeit in a way that also has tortured
the social order. Whatever the outcome of the legal and regulatory maneuvering around
Napster and similar ventures, the Napster type of peer-to-peer technology is forcing the
music industry to abandon an outworn business model, however reluctantly. And few
doubt that this model of decentralized, uncontrollable personal collaboration will soon
bulldoze many other businesses than just music.

EBay is another example of a ‘new economy’ venture that has forced a fundamental
transformation of commercial processes—again, by unleashing a new and paradoxically
impersonal form of personal collaboration, in this case to set prices and exchange goods
in a medium that is simplistically user-friendly and globally accessible.

These are but two of many possible examples—instant messaging, multi-user online
games, maybe even ‘reality TV’—of something big happening: Collaboration has
mushroomed in recent months as a critical theme affecting nearly every segment of the IT
2
market. And—notably, for the purpose of this report—it is a theme that intrinsically
begins and ends with people.

For the past decade, analyst George

Collaboration has mushroomed in recent
months as a critical theme affecting nearly
every segment of the IT market. And it is a
theme that intrinsically begins and ends with
people.
Gilder has projected that the fusion of
ever-cheaper computational intelligence
with broadband telecommunication would
drive profound economic and social
change. The turbulence of this transition
is likely just another symptom of its
speed.

Until recently, telecommunication involved the horizontal exchange of information while

humans normally worked together in more vertically ‘stove-piped,’ hierarchical
people. But the gathering IT fusion of what Gilder calls the ‘microcosm’ and the
organizations.
‘telecosm’ are steadily changing the networked relationships among people—from co-
informing toward co-acting.

The Collaboration Wave may prove more powerful, maybe more daunting, than
‘globalization.’ Focused mostly at the macro level, globalization reflected growing
international intercourse among whole enterprises. While the Collaboration Wave today
seems often to be identified with business-to-business (B2B) commerce, it increasingly will
reflect the personalization and globalization of individual working relationships. “B2B has to
be rethought as H2H, that is human-to-human, for business collaboration to really work,”
says Jeff Crigler, co-founder of Engenia Software.

2
See Britton Manasco, William S. Hopkins, and Lewis J. Perelman, KCG MarketView: Collaborative Commerce
Solutions. Austin, TX: Knowledge Capital Group, Inc., 2001.

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 We can only guess exactly how these transformations will turn out. But the
telecommunications industry is one notable current indicator that basic changes are likely
in the design of enterprises and the mobilization of human talent.

At the moment, the telecommunications sector is in acute distress, battered by the

simultaneous obsolescence of technologies, regulatory policies, business models, and
organizational designs. The vestiges of the old ‘Ma Bell’ regulated monopolies are
decrepit, their ‘nothing goes’ culture repelling creative talent with bureaucratic inertia, and
maneuvering turbulent markets with the agility of an overloaded supertanker.

But after the crash of Internet euphoria, the ‘anything goes’ culture of the new-media
entrepreneurs has been widely obliterated. While some of the Internet start-ups took
advantage of a clean slate to try unorthodox ways to employ and organize talent, most of
the alternative models proved no more sustainable than the businesses on which they
were built. And the founders of many of the new ventures, obsessed more with building a
‘disruptive’ technology than a durable business organization, had as generic an interest in
HCM ‘solutions,’ as they did in furniture rental or janitorial service.

This pattern in the telecom sector suggests that neither stick-to-your-knitting

regimentation nor masters-of-the-universe narcissism is going to be a sustainable
model for organizing and managing talent in the new economy. The quest for a Goldilocks
‘just right’ integration of individual talent and collective productivity has a ways to go. If the
solution to this paradox were simple, socialism would have had a better record. There’s a
reason that athletic coaches who master the synergy of talent and teamwork wind up in a
Hall of Fame.

But businesses still need to engage human talent and still need to organize it somehow.
And the same rushing technological imperative that makes creative collaboration an ever
more urgent challenge for business success also offers new opportunities for realizing it.

The momentum of the emerging Collaboration Wave, whose signs are already tangible
now, seems destined only to grow over the next several years. We cannot predict the
future any more reliably than most stockbrokers. But there are some already visible trends
to suggest that significant change is coming in how information technology will relate to
how people work, and how people work with other people.

Tomorrow: the Relationship Paradigm

Much of what we see so far in the HCM solutions market aims simply to automate or
outsource rather inefficient, labor-intensive bureaucratic functions to reduce costs and
administrative overhead, and perhaps headcount. Not that there’s anything wrong with
that. (Apologies to Jerry Seinfeld.) But even if digital bureaucracy may be more efficient
and less costly, it’s still bureaucracy.

The growth opportunity: Relationship Capital Management

The real ‘value-added’ solutions will be not so much in human capital as in relationship
capital. Driven by the gathering Collaboration Wave, a growing number of IT companies
are now focused on the market for ‘xRM’—as in Relationship Management, where ‘x’ may
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 TRADEOFFS IN HCM PARADIGMS

Inventory management focuses on the content, turnover, and

allocation of the organization’s inventory of HC. Relationship
Inventory v. Relationship management focuses on creating productive relationships among
employees, suppliers, customers, and other people who participate in
the organization’s business.

Increasing the amount of people employed v. making more productive

Recruiting v. Productivity
use of the people who are employed.

Organizational intelligence has multiple sources: Individual ‘genius.’

Genius v. Teamwork v. System Intelligence High-performance teamwork. ‘Artificial’ intelligence embedded in
information systems.

Credentials are resumes, diplomas, transcripts, licenses, affiliations,

Credentials v. Competence and other proxies of ability. Competence is know-how and know-what
demonstrated in actual, relevant performance.

Practitioners as administrators of rules, regulations, and requirements

v. practitioners as consultants who help shape and improve the
Administrative Control v. Strategic
performance of the organization’s business. The analogy in
Consulting
instructional practice is “the sage on the stage” v. “the guide on the
side.”

Focus on the functions of particular ‘jobs’ v. the culture of the

Function v. Culture
organization.

Inventory approach centrally manages individual rewards, whether for

personal or group performance. Relationship approach allows self-
Incentives: ‘I’ v. ‘We’
directed teams to manage shared rewards. Tradeoff involves mixing
approaches to achieve some optimal synergy for the enterprise.

Viewing people as ‘resources’ to be ‘employed’ for the use of the

production process v. viewing people as members who join an
Employment v. Membership organization on the basis of shared mission and values.

be customer, supplier, partner, or other. In the networked economy, the ‘relationship web’
is where corporate valuation increasingly is spawned. Again, most of today’s HCM
solutions are not oriented to the xRM space.

As rich as the opportunities in xRM are likely to become, there is a caveat: We’ve seen
that the ‘business collaboration’ category currently is confused about what ‘collaboration’
really means. Too often it is identified simply with computer-to-computer interaction across
some process path, whether ‘supply chain’ or ‘sales chain’ or other. But ‘collaborating,’ like
knowing, is something people do.

Failing to grasp that distinction could prove an expensive mistake for customers and
vendors alike. The huge costs from ignoring human factors in the implementation of ERP
and other enterprise IT systems over the last decade now threaten to be repeated, even
magnified, in the pursuit of business collaboration. InternetWeek reports that the design of
today’s Customer Relationship Management applications, for example, does not

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 “complement the way sales people, customer service representatives and other front-line
employees do their jobs….” And for companies, the price of this failure is “an expensive
and time-consuming implementation that yields no return on investment.”

The space where the most acute needs and most potentially profitable IT opportunities are
now is neither in human capital management nor business collaboration management but
the amalgam of both: collaborative relationship management centered on human factors.

The instinct of HR professionals is correct when they try to reposition themselves as

‘performance consultants’—strategic management roles are attached to flows and
processes rather than stock or inventory. The central problem of managing corporate
performance is a matter of managing team or group performance, not individual
performance. But too many HCM IT ‘solutions’ focus on inventory management rather
than on organizational relationships and processes. This is similar to the trap that has
bogged down ‘Knowledge Management’ in shuffling document repositories rather than
energizing human collaboration. That’s not to say that these functions have no value or
demand. It’s just that they do not, alone, lead to the more ‘strategic’ role that HR, IT, and
other staff professionals desire.

Loyalty: relationships not containment

Something like lifetime (at least long-term) employment and valuing loyalty were more
common in business, especially in the U.S., a few decades ago than they have been
lately. In recent years, there has been greater enthusiasm for the flexibility of more
contingent, transitory employment. But the locus of that enthusiasm seems to shift with
changing circumstances. During the go-go economy of the past decade, in-demand
workers liked the upward mobility job-hopping seemed to offer, while employers’
appreciation for the virtues of loyalty and retention grew in step with the ferocity of the
bidding war for talent. Today, as the bears have chased the bulls away, the parties seem
to have switched philosophies: Beleaguered CEOs now abhor ‘fixed costs’ and savor the
flexibility of contingent employment. Meanwhile, new MBAs who a year or so ago chased
dreams of rapid wealth in start-up land now flock to the security of a Blue Chip corporate
cocoon.

As Japan and Europe learned, too much loyalty and too little turnover can be a real
economic handicap. On the other hand, it seems true that many U.S. companies
underestimate the costs of turnover, not only in added overhead and lost productivity, but
the possibly greater loss of experience and knowledge.

But as long as our framework is constrained to the inventory paradigm of employment, the
ambivalent cases for loyalty and retention versus mobility and turnover may remain
arbitrary and unresolvable. In the alternative, relationship paradigm, ‘loyalty’ or ‘retention’
does not mean just the preservation of the status quo in a working relationship. Rather, it
is more a matter of maintaining goodwill in business relationships as they evolve through
changing circumstances.

There are at least two practical reasons for this. One is the common-sense recognition, as
the saying goes, that ‘what goes around comes around.’ The relationships you may be
forced to cut loose today—whether with employees, suppliers, partners, customers or
others—may become important again in the future. When they do, you are clearly better
off if they are friendly than if they are hostile. Beyond common sense, this technically is an

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 application of ‘real options’ theory—there is a real present value of ‘purchasing’ an option
to make a choice sometime in the future, just as there is in the stock or commodities
markets.

The second practical reason for maintaining goodwill in working relationships is an

extension (and a correction) of Knowledge Management. It turns out in practice that
‘capturing’ and archiving ‘tacit knowledge’ is mostly impossible. As IBM resident expert
Laurence Prusak argues, knowing is mainly something that people do. And it is very hard
to know what people know or how they know what they know or how to verbalize any of
that—whether for yourself or for others. As Isadora Duncan is supposed to have said to a
reporter who asked her to explain the meaning of her dance, “If I could talk about it I
wouldn’t have to dance it.” Initial analysis following the recent completion of the human
genome map suggested that there may be far less information in human genes than was
widely expected. So the genes appear to be much less a ‘blueprint’ for building a human
being than a set of guidelines. The remaining information required to complete the
construction is contained in the context of the biochemical stew in which the genes get
expressed as proteins.

When a company severs relationships with employees and other people who know its
product and its business, it risks losing ‘intangible’ but valuable intellectual capital. So even
if financial or other exigencies require changing a current relationship, it pays to try to
preserve as much of the mental and emotional engagement as possible. And business
research bears this out. Research shows that companies that simplistically ‘downsize’
during a recession generally do not achieve greater competitiveness, profitability, or even
cost savings. Rather (as common sense would suggest), companies that shared
information openly with employees, provided early warning of necessary changes, and
made every effort to preserve employment before resorting to layoffs saved more money
in the short run and were more competitive and profitable in the longer run.

From STS design to Complexity: toward self-organization

The polymath Thomas Jefferson not only founded but also designed the architecture of
the University of Virginia. At the end of construction, the builders asked Jefferson, as the
final step, where they should pave walkways connecting the buildings. “Wait until the first
snow,” Jefferson famously advised: the students’ footprints would trace where the
walkways belonged.

This tale gives the flavor of what the pioneers of sociotechnical systems design were
reaching for half a century ago, which is being reinforced today by the lessons for
organizational design that business theorists are drawing from the modern mathematics of
complexity. Their basic insight is that self-organizing, self-adaptive complex systems, left
to their own devices, are able to generate effective solutions in the absence of any
centralized command from headquarters. Actually, they often are better able.

So the relationship paradigm not only overturns the Taylor-based, inventory vision of
‘human capital.’ Progressively it also is transforming the industrial meaning of
‘management’ as command-and-control, buy-and-sell, win-or-lose to something that is
both more ecological and more literally ‘ethical.’ Ecological in the sense of the corporation
as an ecosystem of living, interacting entities that may be ‘husbanded’ but not controlled.

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 Ethical in the sense of leading people by tending the combination of vision and values that
comprises the corporate ethos.

Personalizing teamwork

Many of today’s HCM solutions equate ‘personalization’ with simply offering ‘self-selection’
from a corporate-defined menu. But that is miles away from enabling the kind of
personalization, customization, and collaboration that is needed, says consultant Susanne
Kelly, co-author of The Complexity Advantage. As Kelly sees it, most companies have
been far readier to personalize and customize their relationships with customers than they
have with employees. Simplistically, we could say that e-CRM is far more advanced than
e-HRM in that regard.

In particular, data mining, collaborative filtering, and similar technologies are now used to
improve business understanding of what customers want, how they want it, and how they
value the products and services that the market offers them. Applying similar tools to
generate greater understanding of how and why people work together could greatly
improve not only personalization but productivity and the satisfaction of worklife.

Both the needs and opportunities for Personalization of working relationships are growing.
But the inventory paradigm, focusing on the individual employee in isolation, misses both
the need and the trend. Echoing Alvin Toffler’s prescient notion of ‘mass customization’ is
a similar virtuous paradox: personalized teamwork. That is not just a matter of
empowering each individual but empowering communities of individuals (teams, interest
groups, communities of practice) to ‘flock’ together through self-direction.

Hyperlearning: toward virtual experience

On a chart, the ‘learning curve’ looks like a flattened S-shaped, horizontal line. While
organizational psychologists realized soon after its discovery that the curve implied that
the workforce must have been learning from experience, there wasn’t much that
management could do to change the curve’s shape. The ‘learning’ in the curve was
welded to experience—defined strictly in terms of the cumulative volume of production.
Simply, the only way to learn more, faster, was to produce more, faster.

What managers could do with the learning curve was project costs more accurately for
setting prices or making bids on contracts. Significantly, they also could increase
productivity and hence profits by accelerating production volume—by trying to speed up
sales and to capture a greater market share. And, following the path of STS and other
organizational innovations aimed at empowering workers and enhancing teamwork, they
hoped to make it easier for the workforce to learn from experience and apply the learning
to ‘continuous improvement.’

But while these actions could sometimes make the slope of the learning/experience curve
steeper, they did not alter the basic equation and form of the curve. Through most of the
decades that followed the discovery of the learning curve in the 1930s, few if anyone
imagined that the learning process itself could be altered or managed.

The exploding power and growing integration of computing and telecommunication

technologies finally, in the last decade, created possibilities to transform the processes of
corporate learning, bending the old learning curve virtuously ‘out of shape.’ In place of the

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 old production-bound learning is an emerging ‘hyperlearning’ process. If charted, the
hyperlearning curve would look less like a line extending in lockstep with production and
more like a loop or spiral, wrapped around and practically independent of actual
production.

The most powerful driver of this hyperlearning transformation may be the growing
collaborative use of simulation and modeling by product development teams to design and
test new products such as the Boeing 777 in ‘virtual reality’ before, as the engineers say,
“the first piece of metal is bent.”

Similar (sometimes the same) simulation technology increasingly is applied to training,

testing, and recruiting of the workforce. Better knowledge management, performance
support, and e-learning systems are converging to concentrate more knowledge,
intelligence, and learning at the point where work is done. And neural networks and other
increasingly intelligent tools are not merely instruments of learning—they do learning.

Compensation quandary

As it commonly does in times of economic distress, ‘performance-based’ compensation

has become a popular topic in management circles lately. But ‘rewarding performance’ is
hardly a new or innovative idea. In the inventory paradigm, monitoring an individual’s work
and rewarding individual performance has been a common practice; the most elemental
form long has been identified with piecework sweatshops, migrant grape pickers, and
such. The inventory paradigm also has experience with rewarding individuals on the basis
of group performance, in the form of profit-sharing, stock options, and so forth.

The unresolved challenge of compensation strategy is finding the effective balance

between group incentives and individual incentives. What digital complexity now offers is
at least the possibility of allowing self-organizing social systems to optimize around both
without central, command planning.

Elusive business models

With the Collaboration Wave, the whole architecture of the Internet environment is moving
in a direction that parallels and supports the shift from the inventory paradigm toward the
relationship paradigm. Today’s telecomputing technology already is helping to accelerate
this business transformation. And the limits of the power and usability of technology are
bound to steadily recede.

From a market perspective, existing examples such as Napster, eBay, instant messaging,
online gaming, and others raise the possibility that at least some of the IT innovations that
are most effective at enabling new and powerful forms of social organization may offer no
profitable business model. Consumers of course welcome tools that are more or less free,
open, and standard. Profit-seeking vendors of relationship management ‘solutions,’ on the
other hand, in some cases will need to devise customized, value-added, proprietary
products that can be added on to the ‘free’ architecture. Or, vendors may need to shift
their business models to focus less on products and more on value-adding services.

The shift of organizational needs toward the relationship paradigm poses a further
dilemma for IT solution vendors. The vertically stovepiped structure of typical corporate
bureaucracies offers no directly relevant ‘port of entry’ for solutions that span the

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 boundaries of the organization chart—which is precisely what effective solutions to the
complex sociotechnical needs of the new economy organization should do.

So vendors of relationship solutions often will find it more difficult to target the right
customer for their marketing and sales. IT staff may not be sensitive to the human benefits
of relationship solutions, or may just view the organizational issues as beyond the IT
domain. But HR staff may not be prepared to evaluate sophisticated technology, or may
not be empowered to purchase an IT solution even if they appreciate it. And financial
controllers may be unenthusiastic about solutions that promise, or threaten, to decentralize
management control.

Conclusion

There is a strong, broadly shared sense that the terrorist attacks on the United States on
and after September 11, 2001 have changed the world in profound and enduring ways.
These events are still too recent at the time this is written to anticipate the sweep of their
social and economic impacts.

Still, it seems evident that the growing threats to security and survival only have raised the
stakes and increased the urgency of the Collaboration Wave charted above. The systems
of collaborative work and commerce that already had evolved prior to last September
immediately were challenged to adapt to the new threat environment. At the same time,
social-technical infrastructures for security, defense, and disaster management in the U.S.
and other modern societies were shown to have acute needs for enhanced intelligence,
agility, speed, and boundary-spanning collaboration.

In the wake of the attacks, the liabilities from the lack of collaboration across the various
pieces of the 'intelligence community' instantly became a more tangible and more urgent
problem. Similar lack of collaboration across and among the multiple agencies concerned
with law enforcement, immigration, public health, emergency management, and even
philanthropy have now become critical issues of national security.

While some, inevitably, have indulged in finger-pointing to assign ‘fault,’ the public mood
broadly has been far less one of blame than it is a powerful mandate to increase
collaboration across bureaucratic turf to close the gaps in security and crisis response.
The public sector is under pressure now to catch and surpass the Collaboration Wave that
already has surged in private industry. George Tenet, director of the U.S. Central
Intelligence Agency, for example, testified in Senate hearings that the CIA and other
organizations need to leverage the Internet and other technologies to “enhance
collaboration and the flow of information to move information faster than we ever have
before.” And Robert Wardell, special assistant to the chairman of the military Joint Chiefs
of Staff told a reporter that the Pentagon is seeking ways to enable soldiers on the ground
in such places as Afghanistan to “establish ad hoc computer connections with forces, say,
inside helicopters in Uzbekistan, or with officers back home and even with allies
abroad….”

The needed collaboration is not just across the public sector, but at least equally with and
among the private sector. Greater public/private collaboration now is being pushed where
it is both needed and productive, as in transportation. But security threats demand greater

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 private/private sector collaboration for two reasons: (1) Because security/crisis risks are
tangible to business now, and business will usually be better served by collaborating to
define its own solutions quickly, rather than waiting for government to impose them. (2)
Because, in fact, economic growth is the number one security issue for the U.S. and the
modern global economy in general.

Growth is needed, most broadly, because reversing and ultimately destroying the
development of the open society and the open global market economy is the prime goal of
our terrorist enemies—economic insecurity and decline is victory for terrorism.
Pragmatically, Fortune magazine estimates that enhanced security and resiliency needed
to protect the economic infrastructure has added some $150 billion per year of frictional
costs to the U.S. economy alone. So growth needs to be accelerated to offset these costs.

Last but hardly least, broader, more constructive and socially appealing globalization is
essential to win whole populations over to the side of modernity and away from the siren
call of terrorist violence and nihilism. And, greater, more secure, more productive
collaborative work and commerce are crucial driving forces for growth of the modern,
global economy.

XXX

Dr. Lewis J. Perelman is a management and policy consultant based in the Washington,
DC area.

Email: kanbrain@post.harvard.edu

Web: www.LinkedIn.com/in/LewisJPerelman

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