maanantai 14. heinäkuuta 2014

How to Make Empowerment Work in Real Life? The Leader's Dilemma.

Management fads come and go, but some are there to stay. Empowerment is not a new invention in management practice and theory, yet it isn’t out-of-date by any means. In fact, there are probably huge amounts of underutilized potential in organizations, waiting to be unleashed through empowerment of capable individuals. Facing the intense competition from developing economies, companies in the developed countries need to make most of every brain they’ve hired. Also employees in these countries expect more from their working life than simply “trading” eight hours a day for cash. 

Why, then, hasn’t every organization gone “empowered” already? 

Based on years of work on the topic, Jeremy Hope, Peter Bunce and Franz Röösli present a modern management model in their book “The Leader’s Dilemma – How to Build an Empowered and Adaptive Organization Without Losing Control”. They argue that the so-called “command and control” model, based on top-down strategies and targets and control through detailed budgets, rules and reports has come to an end.
In their alternative model, organizations are seen as webs of unpredictable relationships where the whole system determines the performance – as opposed to predictable cause-and-effect relationships between the parts of the system. Moreover, organizations are self-organizing and self-regulating, with change seen rather integrative and adaptive than project-based and reactive.
The writers contend that most leaders willingly agree the superiority of the alternative model, but are stuck in the old models of command and control, based on the mechanistic view of the organization as an obedient machine. They suggest twelve practical principles that would help organizations in adopting the new model. The tough part is, as the writers argue, that in order to be successful you can’t pick your favorite principles only, so we’ll need to take a look at each of them...

#1 – Values: Bind people to a common cause, not a central plan. 

While making a profit is a prerequisite for a company’s existence, it is hardly sufficient as the company’s sole purpose. Admittedly, no company can exist without investors of some kind, and their main interest is making a profit – but they are not the only stakeholder needed. Truly, how many of us dream of, or describe as a main achievement in our career, the generation of shareholder value?

A company’s purpose needs to be tied to social or community values that have a real meaning to the employees, such as making a change in the industry, satisfying the customer, being the best or simply doing a good job. This purpose must be clearly and constantly communicated in every possible way and even more importantly, the company has to live up to its values, which sometimes means sacrificing short-term profitability. There is often a conflict of interest between this and an investor (or employee), who wants to cash in with the company quickly and then move on with something else.

In my view the purpose of the company, and whether the company lives and breathes that purpose, must be made more visible. It should be built into the valuation of the company, as well as into rewarding systems of its management. This may be the most abstract of the principles, but important to get right, as it is the foundation for everything else.

#2 – Governance: Govern through shared values and sound judgment, not detailed rules and regulations.

Most large enterprises have detailed risk management policies, internal audits and rulebooks. Yet disasters like the 2010 Gulf of Mexico oil rig explosion, and fraud scandals like Enron happen. The authors argue that detailed rules and regulation give only an illusion of control, not the best possible risk management.

The better way would be to come up with and share throughout the organization clear strategies, values and desired behaviors, make information available to support decision-making and empower people to make judgments and assume responsibility of their actions. The authors emphasize the right kind of management and board, with a deep understanding of the company and its values, reasonable compensation and promoted from within the company rather than from the outside.

#3 – Transparency: Make information open and transparent, don’t restrict and control it.
We’ve come to an era, where restricting information is getting very difficult. It should not be the target, either. The book makes a point that in organizations, where most information is openly shared, people are more prepared to face even the tough decisions and act on the best interests of the company. Transparency of information increases speed, responsiveness, learning and innovation of the workplace.
In practice, transparency means that the information is also unambiguous, instantly available and understandable for everyone. Also the bad news should be openly shared – “don’t shoot the messenger”!
#4 – Teams: Organize around a network of accountable teams, not centralized functions.

Hope, Bunce and Röösli turn the organizational hierarchy “on its side”, with frontline teams as “value centers”. These value centers are responsible for their defined customer segment, product group, geography or similar, and have the authority to act within their responsibility area. The support teams, in turn, are responsible for providing their services to the frontline teams at the lowest possible unit cost. Additionally, there is the executive team, whose job is not to dictate, but to set the boundaries to other teams, and coach and challenge them to think better ways of working.

#5 – Trust: Trust teams to regulate and improve their performance; don’t micro-manage them.

The authors claim that empowerment cannot be “given” – it has to be taken by people who really believe that they can make decisions. Another important notion is that freedom must come with the capability to make decisions, and with accountability for the consequences. However, when leaders trust their people and allow them also to make mistakes, the trust will start building up in both directions, and teams getting more capable of managing themselves. 

#6 – Accountability: Base accountability on holistic criteria and peer reviews, not on hierarchical relationships.
“It’s not in my job description” is a common defense at many workplaces and means that the mysterious “someone else” is accountable. The authors conclude that only people can be accountable, not systems, machines or processes. The way to initiate real accountability is to ensure that the value center teams are responsible for satisfying the customer, and the support teams responsible for helping them in that. Rather than evaluating each individual against a detailed job description, the teams should be evaluated on a holistic criteria that takes into account all the key aspects of success. 

#7 – Goals: Set ambitious medium-term goals, not short-term negotiated targets.

The usual way of setting targets is through negotiated budgets. Growth of revenues and profits is assumed year-on-year, with managers pushing for higher figures, and subordinates sandbagging to get a performance target that is easy to reach. Once the target has been sent, typically it soon becomes evident that, due to market conditions, the numbers will be either easily met or completely out of reach.

Hope, Bunce and Röösli suggest setting relative performance goals instead. They make a comparison to a football league, where success is not defined as a fixed number of wins, but the position in the league table at the end of the season. Every team will do their best until the final game to end up as high as possible in the table. This works between the teams inside the company, as well as between the whole company and its peers in the market. When these goals are well-defined, there is little need of periodic revision and negotiation – the peers keep trying to exceed each other’s performance, the goals naturally move higher.

If the teams compete against each other, how is effective co-operation possible between them? According to the authors, the key is that although the teams compare each other’s performance, they don’t compete for the same customers – avoiding a zero-sum game, where one team’s win could be another one’s loss. The authors also refer to recent research concluding that people rewarded for individual performance share information the least, while those rewarded for team performance more and the ones rewarded for company performance the most.

#8 – Rewards: Base Rewards on relative performance, not fixed targets.
Perhaps the most important notion of the authors is that while poor compensation is a source of demotivation, lasting motivation is not built by adding overly generous incentive programs. Instead, people are motivated by self-esteem and personal development or, put simply, the feeling that they are doing a good job. I believe that this is especially true in the welfare economies, where people can’t radically change their living conditions by earning more money. Non-cash motivators, such as praise and attention from management, a chance to lead a project or a simple “thank you” appear to be stronger motivators. The book cites John Seddon, a UK psychologist and business consultant, saying that in all cases he knows, scrapping the incentive scheme and replacing it by salary has improved cooperation and customer service and reduced sales force turnover. Most importantly, it has increased sales!

If financial rewards are nevertheless going to be paid, they should be based on teams rather than individuals. The benefits of this approach are probably obvious, but the authors also argue that its most-feared problem, “free riding”, is very small. In a team-based culture, the free riders are exposed, subjected to peer pressure and eventually replaced.

Setting the performance targets in advance and basing the rewards on them can, according to the book, “produce perverse effects”. If the people notice early on that they will not meet their minimum target, or will exceed the maximum, there is no longer incentive to maximize the results for that year. There are many ways to “play” such a system. A better way is to base the rewards on relative performance, against internal or external peers. This can, of course, be done only in hindsight. Although this approach adds subjectivity to the process, it can be made more dependable and transparent by setting evaluation criteria in advance and making them known to everyone.

#9 – Planning:

The change in the real world is continuous; it doesn’t come in annual increments. Yet most companies “manage the year end” – once again, through the budgets set in a politics-infused, exhaustive negotiation process from September till December. This process is too rigid and slow to properly respond to changes in the marketplace and take the advantage of them.

The adaptive leaders see planning as a continuous process, driven by major external and internal events and the emerging knowledge thereof. They scrap the budgets and, instead, use rolling forecasts that are not focused on deviations from a fixed target, but on as realistic a view of the future as possible, involving various scenarios. The front-line teams follow up the changes, consider their best options and act accordingly. A high-level strategy is still needed, but it should provide direction, rather than fixed targets and be created and updated with a strong involvement of the front-line teams.

#10 – Coordination: Coordinate interactions dynamically, not through annual budgets.

When the authors talk about using “pull” instead of “push” and refer to the Toyota model, it sounds like we’ve heard all this decades ago. But the idea goes further than merely setting up the supply chain. Especially companies in capital-heavy industries tend to commit themselves to a certain type and levels of production already when they invest in machinery and buildings. The fixed costs have to be paid, which immediately creates a push for reaching break-even volumes of the type of products that the process is suited for. The trick is to build flexibility into internal capabilities and processes, and also in developing long-term and dynamic supplier partnerships. 

#11 – Resources: Make resources available just-in-time, not just-in-case.
The executive team of the company needs to act as venture capitalists – allocating resources to the best opportunities available at any time. An effective way to do this is to create an internal market, where business opportunities compete for support resources, and also the support teams compete for the demand of their services. 

#12 – Controls: Base controls on fast, frequent feedback, not on budget variances.
If you’re reading “Leader’s Dilemma” and have gotten as far as chapter 12, it should be clear by now that the authors are not big fans of budgeting (who is?). Rather than monitoring budget variances, the leaders should provide the teams with a relevant set of Key Performance Indicators (KPIs). When setting these KPIs, it is important to understand what the company really stands for, what are its fundamental values and how its success is defined. When it’s clear what we want, it’s much easier to measure, whether we’ve reached it!
What’s intriguing about empowerment is the very fact that it isn’t easy – there is still potential for sustainable competitive advantage for the willing and capable organizations. But whose job is it to turn an organization into empowered and adaptive, without losing control?

Throughout the book the authors present cases, where customers, investors, employees, managers and even the society at large have benefited from the success of companies that have employed this modern management model. Thus, I believe it’s in everyone’s interests to be accountable, and demand the right kind of behavior from each other.


Jussi Hienonen

Executive MBA-opiskelija
Menestyksen Strategiat –ohjelman 2013-2014 osallistuja


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