How To Use Compounding Within Your Business

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There’s magic in the power of compounding. Warren Buffett once said, “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” Albert Einstein called compounding “the eighth wonder of the world.”

The power of compounding extends beyond financial issues to something more basic: human relationships. The Harvard Longevity Study, which is the longest-running study on happiness, found that personal relationships lead to greater health and happiness.

Sean Flaherty’s Momentum Framework extends it to business relationships—i.e., how we relate to other workers, customers and vendors. Relationships aren’t single transactions; rather, they evolve over time through three stages. In the first stage of a relationship, you seek trust from a person or company. Over time, trust can compound into loyalty that leads you to want to work with the other person or business. At the highest level, loyalty compounds into advocacy. You want the person or company to succeed for itself, and therefore you’ll take an extra step to champion and refer the person or business.

Learn from the experiences of the pandemic.

Many CEOs today are confronted with a future-of-work challenge of how to get peak performance from their workers. Should we allow workers to continue being remote, force them back to working in the office as they did before 2020 or find some “hybrid” compromise that meets the needs for sustainable productivity and profitability for the company as well as fulfilling lifestyles for workers? Understanding the power of relationship compounding can lead to wiser decisions to resolve this challenge.

When the pandemic started and lockdowns were ordered, nonessential workers had to work from home. Some people feared that this meant many workers would be unproductive—because there was no one to micro-manage them. However, data showed that most people were still productive. One reason was that people adjusted their traditional hours from, say, eight consecutive hours to working eight or more hours during a longer 12-hour day, interspersed with time for personal activities. Another reason may be that managers measured their task-oriented projects, which could have led to the Hawthorne effect—when workers know they are being observed, they increase output in response to being watched—occurring.

As offices opened back up, along with the option of returning to work, many people appreciated their freedom to develop a lifestyle that integrates work and personal lives. For some workers, self-exploration and discovery led them to join the “Great Resignation.” At the same time, more recent data which focused on a wider definition of work (e.g., creative collaboration and developing relationships that compound into more superior outcomes) showed there was a productivity loss from remote work. As a result, companies began offering different variations of hybrid schedules, so people could work at home and at the office based on compromises by management and workers, which often don’t satisfy either group.

Organize teams and empower members.

Rather than create a hybrid model office based on compromises, consider adopting an organizational model that will give employees the ability to do their best work in situations most conducive to their productivity and growth while simultaneously achieving the same for your company.

Companies have adopted different organizational models to organize people and work. These include functional (e.g., sales, finance and customer service), small business units (e.g., product lines and geography) and matrix management (i.e., a combination of the two).

General Stanley McChrystal introduced the Team of Teams model, which he used successfully in the second Iraq war “surge.” It’s built to give the teams agility in action and superior decision making through strong relationships within their teams and across teams. Over time, the power of compounding enables members to climb the relationship ladder from trust to loyalty to advocacy for the good of the team and enterprise.

What’s essential for teams to succeed? Google investigated that question with Project Aristotle. This research initiative designed to identify what differentiates the best teams discovered these five dynamics distinguished the most successful teams from the rest: psychological safety, dependability, structure and clarity, meaning of work and impact of work.

In other words, it’s the teams, not distant management, that make the best decisions on how the hybrid workplace enables people to do their best work. Some projects (e.g., analyzing data and writing a report) can be done in isolation to avoid distractions if that fits the worker’s needs without interfering with the team’s greater mission. For some people, it’s at home; for others, it might be in the office, library, etc. Similarly, for the team to communicate important issues with each other using both the “data and emotion channels,” they need to read body language and not just see headshots in Zoom squares. By being completely present and experiencing the five dynamics, you can challenge each other, collaborate by exploring new options, create synergistic solutions and evaluate objectively.

Because your company’s projects’ needs will change over time, both workers and management will have a chance to learn the best solutions for the teams and the company as a whole. The learning process feeds the knowledge and wisdom of the team members and enables its own compounding effect.

Evaluation of the process and outcomes is essential for each company to figure out how to maximize relationship building. Leaders should embed measures to determine how the process unfolds and its impact. Expect them to vary depending on the composition of team members, their responsibilities, team goals and the nature of corporate culture. Just as individual accountability can become skills improvement with employee feedback, through evaluation of the processes, feedback and coaching, companies can maximize the power to compound relationships into greater trust, loyalty and advocacy.