"Tacit" Workers of the World, Unite

I've written before about the economic implications of living in a "tacit" industry (as opposed to a "transactional" or a "transformational" one—McKinsey's coinage), but there's more to say. A brief review of the bidding:

• transformational jobs are things like manufacturing, mining, and agriculture—today one job in five, whereas a century ago only one job in five was anything else;
• transactional jobs are things like retail sales, accounting, and banking and brokerage;
• tacit jobs involve "searching, coordinating, and monitoring activities required to exchange goods, services, and information."   For instance?   "Running supply chains, managing the way customers experience products, reviving brands, and negotiating acquisitions." 

Now, in "Competitive Advantage through Better Interactions," McKinsey returns to the topic to address an issue that has vexed everyone from hospital administrators to economics professors, ad agency presidents, and managing partners.

The problem, of course, is that while we know how to juice the productivity of transformational jobs—by and large, throw more capital investment at them—and transactional jobs—by and large, refine business processes through continuous learning—these strategies don't apply to tacit jobs:  "[T]he productivity of marketing managers and lawyers can't be raised by standardizing their work or replacing them with machines."

Worse, there's wild fluctuation and variability in performance, "a sure sign that things could be better."  But systematizing, say, the sales force for a high-tech company, is going to backfire.  What makes a good salesperson is, among other things, a superb understanding of the product and the market, integrity, and a nuanced sensitivity to how people make decisions, learned over time:  None of it susceptible to "process-ization."

Before we get too far ahead of ourselves, one caveat:  The industry you work in does not automatically peg you as falling into any one of these three categories; virtually every industry requires tacit work in some measure.  So, e.g., McKinsey claims that tacit workers are 70% of those in healthcare, 60% in securities firms, and 30% even in utilities.  Here are the overall numbers (% of all jobs, 2004):

Back to variability:  If you define performance variability as the standard deviation of performance divided by the mean level of performance, you get:

• 0.9 for companies with low levels of tacit activities;
• 5.5 in the middle; and
• 9.4 in sectors with high tacit activities.

These numbers have consequences.  Measuring performance by EBITDA per employee in $-thousands, you get this result:  Among freight companies (low), the range was from 7 to 90; among retail banks (medium), from -23 to +332, and among investment banks (high), from -82 to +805.

Now that you're all ready to emulate that (unnamed) investment bank at +805, how do you get there from here?

Let go.

Your job is not to superimpose "connectivity" from the top down, but to set up and maintain an environment that encourages tacit interactions to emerge and flourish.  This means: Facilitating learning, breaking down barriers, providing tools to foster collaboration, and permitting decentralized, front-line innovation and decision making.  And it gets scarier still.

Not only do you need to tear out your micromanagement impulses root and branch, you need to revolutionize your strategic decision making:  Allow "a portfolio of initiatives to emerge from internal and external interactions."  This reprises my thoughts on the spontaneous emergence of robust initiatives if people are allowed to "think out loud" together.

In some ways (and McKinsey acknowledges this), professional service firms are already better than corporate America at assembling ad hoc teams to manage a project to completion, which then spontaneously disassemble and reconfigure in new forms responding to new challenges.  But the question is not whether your law firm is better at this than General Motors, it's whether you're better than your competitive set.

Here's the problem:  "The kind of network buildign that tacit workers must do to boost their effectiveness thrives in a culture built on trust,... that rewards collaboration, dispenses group-based incentives, and measures tacit work by its impact and the relationships that those who engage in it forge."  If you think that describes few law firms today, you took the words out of my mouth.

Moreover, the type of relational and institutional learning that occurs cannot be managed from the top-down.  Indeed, McKinsey even endorses blogs and wikis as having "created new, decentralized, and dynamic approaches to the capture and dissemination of the knowledge critical for tacit interations."

This approach may indeed "upend the greater part of what senior management has learned over the past half century."  But when the facts and the environment change, do you change your approach?  If you do, and you're lucky enough to have cautious and risk-averse competition that does not, you are on your way.