Human Potential Project Online by Chris Majer

Our mission is very simple. We intend to revolutionize the practice of management!

Central to our work is the belief that the world does not exist as a permanent fixed reality. We human beings are not merely passive observers. We are intentional players, inventors, designers, and creators of our world. And to accomplish anything, we depend on everyday coordination with others. This is where HP2 makes its mark.

Commitment Based Management

In the last 50 years, the nature of work and the workforce has changed dramatically and permanently. Today our economy is driven by what we call coordination workers. These are people who are educated, have the capacity to solve complex problems, generate innovation, and know how to produce customer satisfaction. They are the value generators in every organization and make up the bulk of our workforce. Organizations manage them with practices left over from WWII, and this produces increasingly large breakdowns for business leaders and for the economy. In this paper we will look at how we have arrived at this moment; we’ll also introduce a new way of seeing the future for the practice of management. To read the full paper on Commitment Based Management, register for free at As we make our way out of the recent financial collapse it may seem strange to suggest that the very bastion of capitalism – Wall Street, is in fact its most dangerous enemy. This is exactly what I am going to claim and here is why I say that. For the last few hundred years the economic system that we call capitalism has been the driving force of our social, political, and economic growth. This country is the world’s last remaining super power because of it. And make no mistake – I am a big fan of capitalism. That is why I think we need to wake up to the forces that are now threatening it. The big danger is not government regulations, it is Wall Street and more precisely its lack of genuine business sense. Here is what I am pointing to. Any company has three types of capital. There is financial capital, pragmatic capital, and symbolic capital. Everyone knows what financial capital is but despite Wall Street’s fixation, it is not the most important. Pragmatic capital is the combination of the competence of the people, the systems, processes, leadership and management practices, in conjunction with the capital equipment and importantly the mood of the organization. It is in fact the most important form of capital as it drives everything. Symbolic capital is both the brand that the company has and the bigger narrative that exists about it in the market. New companies rarely start with financial capital. They get started because someone has a great idea for a product or service and they live in a mood of ambition, they believe in themselves the possibilities of their business. The next step is not financial capital, it is symbolic capital. The entrepreneurs’ have to create a story about the product or service that is compelling as investors ultimately invest in the story of possibilities, not the product. With a compelling story the company can attract financial capital and then the virtuous cycle of growth starts. Financial capital enables the development of new pragmatic capital, which in turn expands the symbolic capital. Symbolic capital attracts more investment or more customers, which in turn generates more financial capital and the cycle continues. What has happened in the last 5-10 years is that this basic process of growth has been hijacked by Wall Street. Instead of reinvesting earnings in growing new pragmatic capital, as would be the norm, analysts and traders insist on seeing quarterly profits and woe to any executive who misses his earning targets. This is a strategy for tragedy and that is exactly what we are now watching unfold. U.S. companies are currently sitting on more cash than ever and are doing what with it? Are they hiring new people, investing in developing the ones they have, spending on new capital equipment or new technology? No, they are doing nothing with it – why? There are two main reasons. 1. They get rewarded for growing earnings, which is not the same thing as growing a company. Earnings get measured quarterly, which is absurd when it can take years to develop a dominating enterprise. Everyone wants to see growth, but when we get fixated on short-term earnings growth we end up gutting a company’s capacity for enduring growth. 2. They lack authentic leadership skills. Too many of today’s C suite executives have come up through the financial ranks. They are great with spreadsheets, analytics, and forecasting. These are all the things that Wall Street worships. They are not leadership skills. These same financial executives are now paralyzed as they wait for “certainty” about is happening with the economy. Leaders know that certainty is an emotional state and certainty arrives when they say so or more importantly, they have the courage to move forward without it. Analysts think it is an intellectual state that you arrive at with enough information. In today’s white-water world there will never be enough information. In the early days the capital markets came into existence for the sole purpose of enabling operating companies to fund the expansion of their pragmatic capital as that was the means by which they grew and generated more financial capital. With this capital they hired people, trained people, bought new equipment, and invested in their communities. Today we have seen the transformation of the capital markets, as they have become ends unto themselves. Stocks, bonds, and the ever-increasing array of complex financial instruments have become a means not to finance the growth of companies and thereby benefit many, but a means for a tiny few to make money for themselves. In the work that we do we spend a lot of time coaching and guiding executive teams. I cannot tell you how many times we have watched a senior team come up with great ideas for making substantial investments in people, technology, or strategic initiatives only to step back from them because, “The analysts following us would raise hell,” of “If we do that we will miss our earnings target and the street will beat the stock down.” The economic collapse was brought to us by graduates of all the best business schools. They work in the financial sector because they have been well trained in analytics and have a fantastic array of technology that can measure all things having to do with financial capital. The problem is they have no real business skill. They don’t know how to develop a product, build a real operating team, manage a series of projects, design a marketing campaign, sell anything to consumers, manage an organization of hundreds or thousands of people, or build a new sense of ambition in a company that has been grabbed by resignation. And since they don’t know how to do any of this and as their spreadsheets can’t measure any of it they don’t think it matters or that anyone can or should be able to do it. This is a dangerous blindness. The way forward is simple – not easy but simple. It will take time but that doesn’t mean we ought not to start. Let’s do three things. Let’s start with a return to the roots of capitalism and begin investing in our pragmatic capital. We need to hire people, train people, and invest in plant and equipment. This will happen when we stop rewarding executives for making quarterly numbers at the expense of sustainable growth. This will only start when boards start rewarding consistent, sustainable growth as opposed to quarterly earnings. The simple truth is that it is way too easy to ensure a profitable quarter. We need to get our attention off of quarterly earnings and put it on actually growing an enterprise. To do that we need to abandon the strictly financial measures that we currently use as they were developed in the 1800’s to be effective in the then emerging industrial era and develop a set of measures that enable us to account for the complex array of factors that actually enable a company to grow. Wall Street loves earnings, but has little grasp for what it actually takes to generate them. Finally, let’s let go of this limiting need for “certainty.” Certainty is thought to be an intellectual state that arrives when you have gathered enough information to have a clear view of the future. In reality is it an emotional state in which you think you know the truth. As noted above, leaders know that certainly arrives when they say so and has nothing to do with endlessly waiting for more information. No amount of information was going to make Phil Knight certain that a sole made on a waffle iron was going to make a running shoe sell. There was no research that made Bill Gates certain that software was going to become a vast industry that Microsoft would dominate. We all know that Steve Jobs never consulted a focus group and there was no data to support the launch of the iPod, yet he was certain it would work. I could keep going but you get the point. We don’t need financial analysts in the C suite, we need leaders. Chris Majer is founder and CEO of Human Potential Project. Follow him on Twitter at @cdmajer.