Experiments in management

Experimenting with management techniques sounds dangerous. Could something explode? Or, perhaps worse, implode? Jules Goddard assures us that trying new methods of management is the only way for businesses to thrive in the future.

People’s lives are defined by a rather small number of key events. Most careers, for example, have long periods of ennui, interrupted by sporadic moments of crisis or surprise or disruption. Typically, the events that shape us happen to us as passive recipients; too rarely do we have a hand in conceiving and designing these events. For much of our working lives, most of us follow the beaten path and put our trust in the wisdom of others; only a small minority give themselves permission to blaze new trails.

Many feel that the overriding sensation at work is of being unduly and unfairly constrained and insufficiently trusted to be oneself and that, furthermore, fulfilment at work comes from investing energy and ingenuity in designing one’s own life chances and taking greater responsibility for one’s own happiness and development. Most organisations make it hard for their employees to live up to these conditions. This may explain why so many organisations themselves also feel ‘stuck’ — described by Jeffrey Pfeffer as ‘the knowing-doing gap’, the hesitancy that prevents people in organisations from simply doing what they know needs to be done.

Organisational paralysis

Acute observers of business life are increasingly coming to the view that it is the social technology of management (as it is interpreted by the majority of companies today) that is most to blame for paralysing organisations and turning gifted and resourceful individuals into what have been called ‘hopeless, hapless and helpless managers’. The performance bottleneck in most businesses is therefore managerial rather than strategic.

Radical performance improvement depends much more on changing the organisational context of work than on inventing next year’s competitive strategy. If the last 20 years were characterised by strategic innovation and radically new business models, then the next 20 years will be marked by management innovation and radically different organisational models.

A shift of focus needs to be made from the technical content of the job to the organisational context of the work. W Edwards Deming, perhaps the most influential management theorist of the 20th century, built his reputation by demonstrating, among other things, that when things go wrong in the artificial, designed world, it is invariably the system that is to blame and not the individual operator. For example, pilot error is almost always an inadequate explanation of a plane crash. From this principle, he drew the lesson that the organisational context in which work is done is a much more significant determinant of corporate performance than the innate capabilities of those doing the work. Indeed, he was accustomed to saying that performance is ‘90 per cent the system and only 10 per cent the individual’. Highly successful companies create a working environment in which groups of lightly managed people freely and naturally combine their individual talents to give of their collective best.

Deming was particularly critical of certain popular managerial practices that he felt were detrimental to individual and group performance. These included widespread behaviours such as setting targets, designing financial incentives, exhorting workers with slogans and selecting suppliers on the basis of price.

In the same spirit as Deming’s research, Jeffrey Pfeffer has observed that no one has ever produced convincing evidence that the best companies are those with the best people. On the contrary, ordinary people in extraordinary organisations invariably outperform extraordinary people in ordinary organisations. Thus, the notion that companies are competing in a war for talent is based on a misconception. Success is less a matter of recruiting the best people and more a matter of creating a culture that brings out the best in all people. In other words, we exaggerate the importance of talent and understate the importance of the working environment.

The design challenge

If context is the main driver of performance, then the design of context becomes, by definition, the central task of management; and the design challenge is to understand the dimensions of the problem and the principles for positioning the organisation in this dimensional space.

All organisations face a limited number of universal dilemmas or trade-offs in the way that they are designed to achieve their goals. These choices relate to the ways in which knowledge is managed, power is exercised and human energy is released.

– Knowledge is the wellspring of organisational competence. Management has the responsibility for accumulating and applying the knowledge assets of the business, which include the know-how and expertise of the employees as well as the more codified forms of intellectual capital owned by the company.

– Power is the medium of management. It is the exercise of authority. It is where the buck stops. Management has the ultimate responsibility for the strategies that get formulated and for the decisions that get made in their pursuit.

– Energy is the vital ingredient of organisational health and resilience. Management has the responsibility for motivating and coordinating the efforts and enthusiasms of everyone working for the company.

If, by analogy, knowledge represents the mind of the firm, then power is its limbs and energy is its heart.

Every organisation, of necessity, addresses the knotty problems of knowledge, power and energy; but the ways in which knowledge, power and energy are managed vary. Different managers answer these perennial questions in different ways, and different organisations are characterised by different solutions to these questions.

In surveying this six-dimensional design landscape, it is important to appreciate that there are no right or wrong locations any more than there are right or wrong generic strategies. As with strategy, the object of the exercise is to invent something that is uniquely appropriate to the prevailing situation. This means creating an organisational culture that differentiates the company from its competitors, because corporate success derives from what is unique about the business.

We can distinguish between external and internal differentiation. For a company to be externally differentiated, its market offering needs to be unique; to be internally differentiated, its structures and systems need to be unique. Clearly, there is a symbiotic relationship between the two. It is unlikely, for example, that a standard operating environment will generate a distinctive competitive strategy. Ordinary organisations do not, as a rule, produce extraordinary outputs.

Although the design space is value neutral, most companies in the world have positioned themselves, usually deliberately and unashamedly, at the left end of each spectrum of options. The standard model of management, ever since it was invented in the late 19th century, has adhered strongly to a faith in hierarchy and bureaucracy, command-and-control, risk avoidance and the adoption of standard, tried-and-tested practices.

The courage to experiment

Richard Rumelt has shown that there is an intriguing paradox at the heart of management today. When he asked a sample of chief executives of US corporations to describe the qualities of the business leaders whom they admired more than any others, the answers he got all dwelt on ‘first-mover’ attributes such as insight, contrarian thinking, bravery and decisive action. But when he asked them to describe the moves they themselves were making in their own companies, the answers were the old perennials of 360 degree feedback, cost containment, outsourcing, shared services, customer relations management, six sigma and process re-engineering. Rumelt described these practices as ‘doorknob polishing’, in contrast to what he saw as the ‘predatory leaps’ courageously made by the leaders most admired.

What kind of company makes the predatory leap into new organisational designs and different managerial practices? It is an unusual form of courage for a company to position itself purposefully in an empty part of the decision space far away from its competitors. Yet this must be one of most of the most powerful ways by which a company can endow itself with a sufficiently scarce and critical resource to act as the foundation for its most durable competitive advantage. A unique operating culture enables the firm to attract a certain kind of person and to engender a certain kind of behaviour. In contrast, where there is a strong herd instinct (driven by convergence upon what is deemed to be best practice, the latest fashion, the safest bet or the industry norm), what is likely to result is a me-too organisation of below-par performance.

If the decision space is indeed value-neutral and if, as we suggest, the vast majority of companies are concentrated in a rather small part of this space, then the opportunities for competitive advantage through management innovation are both plentiful and untapped. We can also surmise that management teams, by neglecting these opportunities, are not truly fulfilling their remit. Or is it unreasonable to criticise managers for not changing the management system of which they are both the product and the beneficiary?

If managers are to take responsibility for their organisational context, then they will need to consider the entire design space with an open mind and an entrepreneurial curiosity, redressing the traditional bias towards the left-hand side. Indeed, there are an increasing number of businesses taking up a position on the right or at least moving their centre of gravity to the right.

Many observers of the management scene and many writers on organisational behaviour are witnessing this shift of view. They are also actively promoting the virtues of the right-hand side and constructing arguments for ‘legitimising’ this previously neglected space.

Proposed experiments

For managers to add value in a ‘post-managerial’ world, they will need to consider redressing the balance they have traditionally struck on the six spectra of organisational design. This will mean exploring new territory, being more adventurous and adopting a more experimental mindset. Here are six examples of the kind of experiments that could serve to radically open up the territory of management, each corresponding to one of the six spectra above.

Experiment #1: Making visible

Underlying principle? Relying less on specialist expertise and more on crowd wisdom

Shift of emphasis? From the individual to the collective

Instructions and rationale? Use new technologies to enable managers to see each other’s actions and the consequences of these actions. This would have the effect of dismantling organisational barriers and boundaries, enriching the workplace, stimulating greater collective learning and investing in social capital. Visibility is already a fundamental ingredient of lean production (such as making inventory — and other costs — visible to everybody). The ability of managers to see the traces of everyone’s behaviour and the successes and failures of everyone’s actions, not just their own, would stimulate change as managers sought to learn from a much broader pool of experience. The greatest stimulus to learning is seeing success accrue to behaviours different from one’s own.

A related benefit from this experiment would be the discovery of everyone’s true talents. Companies do a poor job of finding what their employees do best. The assumption is often made that a person’s skills are defined by the job they do or the position they hold. The Web operates differently. Here, people are known for their demonstrated expertise, not for their CV, their corporate reputation or the job they hold. Reputation relies instead on peer recognition, as evidenced by votes, tags, citations and so on. The Web enables a person’s true identity to emerge.

Experiment #2: Moving to the edge

Underlying principle? Relying less on standard processes and more on informed judgement

Shift of emphasis? From the bureaucratic to the emergent

Instructions and rationale? Recognise that most change originates at the boundaries of the organisation and at the periphery of the reigning paradigm; equally, recognise that complacency and myopia tend to be strongest in the core of the business, where commercial success was first established. Therefore, strengthen the mechanisms of self-organisation and place greater trust in the emergence of higher levels of order than could ever be designed by experts or elites.

The demise of firms begins with the belief that they have found the formula for perpetual prosperity, whether it be a business model, a patent or a platform for growth. However, all formulae ultimately become obsolete, often earlier than expected. Therefore, purposefully set up a mechanism to fight the natural tendency to get stuck with the blueprint. Create islands of entrepreneurship, far away from the centre, to subvert orthodoxy and experiment with alternative options.

Experiment #3: Giving voice

Underlying principle? Relying less on formal structures and more on informal networks

Shift of emphasis? From the hierarchical to the democratic

Instructions and rationale? Acknowledge that many decisions are made better by crowds than by experts and therefore use internal markets and extended networks to give greater say to more people in the origination and prosecution of competitive strategies. Because too much power is typically vested in too few people, it is important to find ways of outsourcing decision making to the collective intelligence of far more members of the organisation. Lou Platt, when CEO of Hewlett-Packard, once said, “If HP knew what HP knows, we would be more successful.” Hierarchies make it difficult for information to flow up as well as down. Therefore, senior executives are unlikely to be well enough informed to make wise decisions. Better therefore to find ways — such as predictive markets — to harvest and apply the knowledge of all employees, particularly around questions of the expected value of future options available to the company.

Similarly, experiment with the idea of angel investors inside the company and thereby open up more sources of experimental capital for the entrepreneurial ideas of employees. Or give budget holders the right to invest X per cent of their budget in whatever opportunity they want or collaborate with peer budget holders to form a syndicate of lenders. Traditional methods of resource allocation by the top team bear an uncanny and uncomfortable resemblance to the economic methods of the Soviet Union.

Experiment #4: Asking “What if?”

Underlying principle? Relying less on central planning and more on local improvisation

Shift of emphasis? From the strategic to the opportunistic

Instructions and rationale? Develop the habit of resolving differences of opinion by putting opinions to the test rather than delegating them upwards for arbitration. This would have the beneficial effect of encouraging the entrepreneurial imagination and experimenting more often and more fearlessly with bolder and less conventional ideas. Hal Varian, a Professor at UC Berkeley, has suggested that firms don’t experiment nearly enough and that more decisions should be made by experimentation and fewer by HIPPOs (highly paid persons’ opinions).

 Experiment #5: Making connections

Underlying principle? Relying less on monetary rewards and more on the rewards of the job itself

Shift of emphasis? From extrinsic to intrinsic motivation

Instructions and rationale? Trade upon the natural enthusiasm of people to get involved in collective activities for reasons of pleasure, pride or peer recognition rather than financial gain and thereby tap into a previously inaccessible world of knowledge, insight and optimism. Test the idea that people do not need to be bribed to give of their best. The open-source movement and the vitality of voluntary organisations are testament to the power of motives other than financial gain. The traditional organisation is designed around the centrality of the job that needs doing. Organisations that understand the potential of social networking are designing themselves around the centrality of the individual who is seeking to make a difference. They are using the new social media to help such individuals find each other, form thematic communities and coordinate their activities. The limiting factor on their performance is not access to capital but their collaborative capacity — that is, their ability to bring dispersed information and skills together.

Define the organisation more broadly to include customers, business partners and many others in the entrepreneurial search for new business ideas. Procter & Gamble showed the way with its highly successful “Connect and Develop” research strategy.

Experiment #6: Expanding ownership

Underlying principle? Relying less on managing others and more on managing oneself

Shift of emphasis? From the instrumental to the ethical

Instructions and rationale? Recognise the agency problem inherent in managerial capitalism and seek to redress it by finding new ways of providing property rights or patent protection to employees who generate ideas and bring them successfully to market. The challenge is to invent structures that encourage employees to think and behave like owners and partners.

Desiderata

The standard model of management has had a distinguished history. It could be said to have been the critical technology at the heart of the industrialisation of the world. It was certainly one of the great inventions of the 19th century. Without it, mass production processes, such as the assembly line, and the immense wealth that flowed from these methods, would never have happened. This model was based on the notion that large numbers of unskilled people, if they were to collaborate on complex and collective tasks, needed clear and precise instructions and that performance therefore depended on controls to ensure compliance.

Today, these requirements are much less common. The workplace has changed out of all recognition. Workforce skills are of a much higher order. Education levels have been raised for most people to a point at which close supervision is redundant or insulting. Organisations are increasingly staffed almost entirely by professionals. As a result, the leadership challenge is very different. Smart people do not respond positively to processes and systems that emphasise alignment, conformity and aversion to risk. They want to be trusted to exercise their own talents in their own way. Research has shown that clever people resent being managed; what they most want and need from their leaders is to be able to express their talents, to develop their expertise, to work on assignments that measure up to their skills, to be freed from administrative distractions, to be allowed to fail, to be recognised for their expertise and to have the time to pursue private efforts. These desiderata are not often met. This is the challenge that organisations will increasingly have to address in the future.