Location, Location, Location: Does Where We Work Matter?

Does location matter in business? Is physical proximity an obsolete concept in today’s technologically advance world? Through emails, phone calls or Skype, we can instantly contact people who live on the other side of the world. Through the internet we have access to almost unlimited information and we can easily share information and resources with our colleagues through email. If I need to get the advice of a colleague who is on the other side of the world, all I need to do is pick up the phone at an appropriate time.

Yet physical location matters hugely. Organisational clusters, the phenomenon whereby firms from the same industry gather together in close proximity, is a perfect example of this. Michael Porter, who is Professor at the Harvard Business School’s Institute for Strategy and Competitiveness and has been studying organisational clusters for some decades writes

“location should no longer be a source of competitive advantage. Open global markets, rapid transportation, and high speed communications should allow any company to source anything from any place at any time. But in practice, location remains central to competition.” (Porter, 1998)

A good example of this is the Silicon Valley, to where, in the 1990s, huge numbers of tech companies began moving. This geographic concentration of similar businesses increases productivity with which they can compete. There are a number of reasons for this, such as access to labour and suppliers. However, one of the most important reasons is the directness in relationships that geographical proximity brings. Despite all the many advantages that technology has brought, we need physical encounters.

This is because much of the most valuable information is obtained not electronically but from face-to-face meetings. Informal learning, acquisition of know-how, and building trust require the face-to-face contacts that occur through social, professional or trade, and business situations.

When we meet someone face to face, communication is enhanced, as facial expression, tone of voice, dress and the actual words used all add to what is communicated. Without this, opportunities can be missed. Furthermore, we base conscious and unconscious judgements about traits such as likeability, trustworthiness and competence on people’s faces. In fact, one study has found that physicians spent more time looking at diagnostic scans when they were accompanied with the photograph of the patient. It is suggested that this picture is a reminder that there is a real person behind the scans, which leads to greater ethical commitment (Turner & Hadas-Halpern, 2008).

If organisations are located close to one another, the number of meetings is also increased. Workers can much more easily speak to those who work around them or pop their head into their colleague’s office next door than call someone on the phone. It is also often in casual meetings, over coffee, or by the water-cooler, where important information is shared. In areas with organisational clusters, workers often end up living in the same neighbourhoods, where they are much more likely to meet each other outside of work, for example in pubs and bars. This deepens the relationship, builds trust and will increase the amount of information sharing there is.

Being together in the same place, at the same time also reinforces belonging in groups and communicates worth and importance. People who work away from rest of their team can quickly and easily feel isolated.

Physical encounters lead to greater connectedness. High levels of directness lead to good quality communication. This is why location is still a source of competitive advantage, even though in theory, in an era of global competition, rapid transport and high speed telecommunications, it shouldn’t be. It explains why different organisations in the same industry cluster together and the large amounts of money spent by companies in getting their staff together for their annual conference. It should encourage us all to make time for face to face meetings and think about how we can encourage directness in our organisations and communities.


M. Porter, ‘Clusters and the New Economics of Competition’, Harvard Business Review, Nov-Dec 1998, p77.

Turner and Hadas-Halpern ‘The Effects of Including a Patient’s Photograph to the Radiographic Examination’, Radiological Society of North America 2008 Scientific Assembly and Annual Meeting, February 18 – February 20, 2008.


Relational dysfunction: a silent killer

“We never manage to do what we intend to do as an organisation.”

“Our strategy looks good on paper but we never manage to actually make it happen.”

We are all familiar with organisations that are no longer able to implement their strategy or deliver their plan. In some cases, it has always been a struggle for them. For others, it just seems to be getting harder. Organisations often look for external explanations. Or perhaps they have tried changing key personnel to inject fresh vision. Cutting staff and tightening up inefficient practices is another common approach. Introducing new systems and performance improvement programmes will usually be attempted.

Yet for some, the ability to implement strategy remains elusive.

From our relational perspective, there are clear signs that there is something dysfunctional going on inside the body corporate. Yet, we meet many leaders who appear to be in denial.

“It can’t be a relational problem because people aren’t actually shouting at each other.”

“Checking whether there are relational issues will only give us bad publicity and won’t solve anything.”

“Let’s keep trying these other things and wait and see; maybe the problem will solve itself.”

Individual relational issues within or between organisations are usually about personality clashes or personal chemistry. Such personal issues are very visible and tend to get addressed (by changing the people or avoiding each other). Organisational relational issues are more insidious and pernicious and more easily ignored. Just as geographic proximity can influence how well two teams work together, relational proximity is a key ingredient of a smoothly functioning organisation.

But there is more to relational proximity than geography. Unbalanced patterns of influence and communication can trigger misalignment, causing people to work at cross-purposes. Lack of mutual knowledge and irregular periods of contact can reduce momentum and cause people to despair of effective change. All of these give a sense of relational distance.

It is not only possible to clearly identify where such issues are occurring, it is also possible to do something about them.

Whilst basic business processes and the usual measures of activity in an organisation might appear to be working normally, core relational issues may be silently hampering its ability to deliver. A sound strategic plan will include an understanding and assessment of relational dynamics, enabling you to deal with organisational silent killers before they take hold.

This article was originally published by Renuma, one of our member organisations, and is republished here with their permission.

Where does capacity come from?

“Don’t tell us we need to change. We can’t: we are already working beyond our capacity.”

“I don’t even have time to think about whether I shouldn’t be doing this.”

“I will think about doing that when I get the chance.”

There should be a fundamental difference between a group of a hundred individuals and a well-functioning organisation of the same size. Yet when individuals are working at their capacity, a hundred people can look like nothing more than a hundred people. Organisational capacity is created by good working relationships and the fluid connections they make.When an individual is working at full capacity, any curve ball, any change request, in fact anything extra, will be treated as a distraction. Even an offer to take some of their workload requires a decision, a hand-over and co-ordination. Adding more people requires all that, plus training and orientation. At full capacity, therefore, individuals become bound to do things that someone else might be able to do more effectively and efficiently.

Effective, efficient organisations realise that investment in relational connections is fundamental to building organisational capacity. Relationships are required to enable the right people to do the right things at the right time. Stop and think about that: without the right relationships, it is likely that the person, activity or timing will be wrong. Inefficiency and reduction in output follow.In order to make change happen, capacity must be used to build relationships and maintain them. Thus, ironically, in order to be in a position to increase the overall volume of work, it is necessary to be working at less than full capacity. If your organisation is already at full capacity, it becomes extremely difficult to create the relational space necessary for change.

Once an organisation has the space to change it will need to recognise the specific issues with their current relationships, address them and manage ongoing improvements to the way they relate. If relational issues are not addressed, inefficiency in engagement and connection will unnecessarily absorb an organisation’s precious capacity.

When someone in your organisation is failing to deliver (or your whole organisation is failing to deliver) it may well be that you have a capacity problem. In that case, improving working relationships is a great place to start in bringing the availability and capability necessary to increase capacity.

This article was originally published by Renuma, one of our member organisations, and is republished here with their permission.

Why let mission-critical become mission-crisis?

Any time-management guru will tell you to distinguish between the urgent and the important. In practice, non-urgent but important tasks get shouted down by the ‘Do it Now’ category of urgent importance. There are, after all, plenty of these on the table for most organisations. The result is that non-urgent issues that should be carefully planned for, simmer away until at some point they drift into the urgent importance camp and get attention.

The mission-critical activities are apparently obvious: hitting the quarterly earnings forecasts, staying within the quarterly budgets, achieving the performance targets. Shareholders are told that the relationship with this or that stakeholder is mission-critical. As employees we hear leaders saying, “Our staff are our most important asset.” As customers we see organisations appoint Client Relationship Managers and we experience an inexhaustible flow of requests to understand our preferences.

And yet our hunch is that relationship is not an important priority for most companies. We see the customer relationship, the employee relationship, the supplier relationship or whichever relationship neglected up to the point it becomes critical. The news is full of banks, hospitals and global businesses that have delayed addressing their mission-critical relationships until they have ‘gone critical.’ For some leaders, it seems that relational issues are like global warming – we should do something about it someday, but if it is going bad, it’s going bad slowly enough for other more urgent things to get our attention in the meantime.

It is true that relationships take time to build and they can also take time to ruin. There is a sense of momentum in relationships. Neglect acts as a decelerating force. At some point, that deceleration becomes acceleration away (e.g. losing a key client) and occasional attention will no longer counteract the change in direction.

Poor prioritisation can miss the fact that some things need to be done regularly. Monitoring relationships and investing in them is one of those regular tasks. If your organisation is not monitoring and investing in relationships, mission-critical connections will eventually get your attention when they are in crisis. But why wait that long? A company neglecting customer value will struggle to meet its earning forecasts. A manufacturer who is not investing in supplier relationships may find budgets spiralling. An organisation in the dark about its clients’ needs is unlikely to meet its performance targets.

There is no need to leave your critical relationships to chance and circumstance. Understand them and consciously build them.

This article was originally published by Renuma, one of our member organisations, and is republished here with their permission.

Mind the Wage Gap

What do you think is the pay differential between the CEO of a company and its lowest skilled worker? And what do you think should be the pay differential?

In research published last November in ‘Perspectives on Psychological Science’, Kiatpongsan and Norton investigate what pay differentials people desire and whether these differentials are consistent among people from different cultures. Gretchen Gavett has written a helpful article summarising their research. You can read it here.

Norton says:

“My coauthor and I were most surprised by the extraordinary consensus across the many different countries in the survey. Despite enormous differences in culture, income, religion, and other factors, respondents in every country surveyed showed a universal desire for smaller gaps in pay between the rich and poor than the current level in their countries.”

What is also extraordinary from the research is the sheer size of the pay differentials, for example around 350 to 1 in America. And most people are completely unaware of the size of the staggering pay gap.

Gavett writes in her article:

“We’re currently far past the late Peter Drucker’s warning that any CEO-to-worker ratio larger than 20:1 would “increase employee resentment and decrease morale.” Twenty years ago it had already hit 40 to 1, and it was around 400 to 1 at the time of his death in 2005. But this new research makes clear that, one, it’s mindbogglingly difficult for ordinary people to even guess at the actual differences between the top and the bottom; and, two, most are in agreement on what that difference should be.”

Indeed, Norton says: “The lack of awareness of the gap in CEO to unskilled worker pay — which in the U.S. people estimate to be 30 to 1 but is in fact 350 to 1 — likely reduces citizens’ desire to take action to decrease that gap,”

Over the years Relational Thinking developed a tool (Relational Proximity® Framework) that can help people, organizations and businesses to measure the closeness and health of their relationships. For this it looks at five factors or dimensions of a relationship: the fourth of these is power. While inevitably in companies some people will have greater power than others, the goal should be parity, so that people will be treated fairly and with mutual respect and understanding. As the research shows, everyone agrees that the huge pay gaps of the kind we see today are unfair. There is no parity between the low paid in the company and CEO at the top.

In ‘Transforming Capitalism From Within’, Jonathan Rushworth and Michael Schluter write “If, for instance, senior executives are paid more than 100 times the amount paid to lower-paid employees, which is not unusual, this can be seen as suggesting that the lower-paid employees have a worth to the business of less than one percent of the highest paid employee. Is it fair that the contribution to the business of the lower-paid employees is regarded as so insignificant as to be valued in this way?”

There are also wider relational consequences outside of the workplace  in undermining social cohesion. The highly paid will live in different locations, use different means of transport and different shops and go to different countries on holidays.

Higher rates of remuneration are certainly justified to reward greater responsibility and experience, longer working hours and often longer training, but there should be a regard for others. The key is not the same pay, but fairness.

In ‘Transforming Capitalism From Within’, the authors argue for a Relational Business Charter, which sets out ten principles which in a practical way provide a framework to indicate whether companies are being managed and operated in a Relational manner in the interests of all stakeholders. The sixth principle is that “[t]he dignity of all employees is respected by minimising remuneration differentials within the business”.  They recommend a maximum pay differential of 1:20, so that there is parity within the company. And as Kiatpongsan and Norton’s research  shows, most people would agree.

What are the pay differentials in your organisation? How can you encourage greater parity within your organisation? How can you improve its relationships?

To find out more, you can buy Transforming Capitalism From Within as hard copy here or here as an ebook.

Photo: Mind the Gap by gmacfadyen.

Post-merger blues

LIVERPOOL/CAMBRIDGE – Analysis of mergers shows that they often don’t improve performance and value over the long run. Any of us who have experienced one will know that the mere process can bring enough stresses to cause operational difficulties to even an effective organisation.

The reasons for the failure to deliver the perceived benefit are commonly reported as unrealistic expectations or an inability to integrate cultures and ways of working. The issues are complex and often feel intangible, as different professional rationale, languages and histories compete within the new entity.

However mergers also represent an excellent opportunity to challenge traditional ways of working and address latent limitation which may have existed in either or both parties prior to merger. If this opportunity can be grasped, then the process of building new company together can be one that develops unity and resilience for the road ahead.

How then can boards and management teams improve the chances of merger benefits being realised? Is it possible to intentionally hasten the blending of cultures such that improvements to the bottom-line are delivered?

Experience shows that key relationships are critical to an effective merger, whether they are departmental, divisional, corporate or individual. The difficulty for those planning mergers is that they rarely have the tools to assess those crucial relationships and find ways to maintain or build them to make a merged organisation ‘great’.

Whilst there are many books about improving inter-personal and corporate relationships, none are actually improved by merely reading a book! The core to relational improvement, whether corporate or inter-personal, is that the parties engage with one another. Companies struggling with post-merger relationships do not need a report about how to improve the relevant relationships but rather assistance (preferably informed by both insight and the facts) to commit to actionable changes.

Tools now exist that have been specifically designed to identify and assess the Relational dynamic of organisations. Where a merger has taken place it is possible to forensically analyse the different aspects of group relationships. This allows potentially dysfunctional groups to build consensus around what is positive in their relationship, address weaknesses in a non-emotive way and deal with fundamental differences in perspective. Undertaking such an analysis will enable teams, by giving language and actionable information, to improve their interaction and performance.

Of course, as well as dealing with relational issues post-merger, it is possible to predict the relational impact that a merger may have on operations and service lines. In this way pro-active measures can be taken to make it a positive change for all involved!

This article was republished with permission of our Member Organization, Renuma Consulting.