bye-bye management! why management is dispensable & how leadership for high performance really...
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Slides from keynote presentation at GISMA, Hannover/Germany, on 6 February 2012. Oranized by Annegret Zurawski, GISMATRANSCRIPT
Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009
Bye-Bye Management! Why management is dispensable and how leadership for high performance really works
Gisma, Hannover, 06.02.2012
Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009
90% Peter Drucker
Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009
4
McKinsey
6
Industrial age ends: ”Supplies have the power“, Evolution of mass markets: Taylorism as the superior model
Characteristics • Incremental change • Long life cycles • Stable prices • Loyal customers • Choosy employers • „Managed“ results
Dynamics and
complexity
1890 1980 1990
low
high
2000 2010 2020 2030
1. Discontinuous change 2. Short life cycles 3. Constant pressure on prices 4. Less loyal customers 5. Choosy employees 6. Transparency, societal pressure
High financial expectations
Knowledge economy advances: ”Customers have the power“,
strong competition, individualized demand: decentralized and adaptive model is superior!
Competitive success factors (CSF) - Fast response - Innovation - Operational excellence - Customer intimacy - Great place to work - Effective governance - Sustained superior value creation/fin.perf.
Characteristics
Most organizations still use a management model that was designed for efficiency, while the problem today is complexity.
Now, all these factors are equally important!
Here, only efficiency mattered, really!
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“command and control“
• Too centralized • Too inward-looking • Too little customer-oriented • Too bureaucratic • Too much focused on control • Too functionally divided • Too slow and time-consuming • Too de-motivating • …
One cannot talk sensibly about leadership, or people management, nor design decent management processes, unless we clarify beforehand our beliefs with regards to what people in organizations are like.
We have to arrive at a shared understanding of human nature and of the consequences of that for our organizations.
Niels Pflaeging, Leading with Flexible Targets
vs. Theory Y
Douglas McGregor
Theory X
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Theory X Theory Y
People need to work and want to take an interest in it. Under right conditions, they can enjoy it.
People will direct themselves towards a target that they accept.
People will seek and accept responsibility, under the right conditions.
Under the right conditions, people are motivated by the desire to realize their own potential.
Creativity and ingenuity are widely distributed and grossly underused.
People dislike work, find it boring, and will avoid it if they can.
People must be forced or bribed to make the right effort. People would rather be directed than accept responsibility, (which they avoid).
People are motivated mainly by money and fears about their job security.
Most people have little creativity - except when it comes to getting round rules.
Source: Douglas McGregor, ‘The Human Side of Enterprise’, 1960
Attitude
Direction
Responsibility
Creativity
Motivation
Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009
15
Theory X Theory Y
People need to work and want to take an interest in it. Under right conditions, they can enjoy it.
People will direct themselves towards a target that they accept.
People will seek and accept responsibility, under the right conditions.
Under the right conditions, people are motivated by the desire to realize their own potential.
Creativity and ingenuity are widely distributed and grossly underused.
People dislike work, find it boring, and will avoid it if they can.
People must be forced or bribed to make the right effort. People would rather be directed than accept responsibility, (which they avoid).
People are motivated mainly by money and fears about their job security.
Most people have little creativity - except when it comes to getting round rules.
Source: Douglas McGregor, ‘The Human Side of Enterprise’, 1960
Attitude
Direction
Responsibility
Creativity
Motivation ?
Vortrag: Niels Pfläging
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Assessment Center
Meritocracy
Time-based work contracts
Control of work hours
Job descriptions
Competence profiling
Motivation/incentives
Individual targets
Performance Appraisals
Salary ranges
Training budgets Personnel Development
Org charts
Target negotiation
Absenteeism management
Personnel cost
Suggestion Schemes Knowledge management
Career plans/paths
Extra hours
Bonuses
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The BetaCodex: The 12 new laws of Leadership
§1 Freedom to act Connectedness not Dependency
§2 Responsibility Cells not Departments
§3 Governance Leadership not Management
§4 Performance climate Result culture not Duty fulfillment
§5 Success Fit not Maximization §6 Transparency Intelligence flow not Power accumulation
§7 Orientation Relative Targets not Top-down prescription
§8 Recognition Sharing not Incentives
§9 Mental presence Preparedness not Planning
§10 Decision-making Consequence not Bureaucracy §11 Resource usage Purpose-driven not Status-oriented
§12 Coordination Market dynamics not Commands
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Henry Mintzberg Gary Hamel Jeremy Hope Michael Hammer Thomas Johnson Charles Horngren …
Stafford Beer Margareth Wheatley Niklas Luhmann W. Edwards Deming Kevin Kelly Ross Ashby Joseph Bragdon …
Douglas McGregor Chris Argyris Jeffrey Pfeffer Reinhard Sprenger Stephen Covey Howard Gardner Viktor Frankl …
Peter Drucker Tom Peters Charles Handy John Kotter Peter Senge Thomas Davenport Peter Block …
Complexity Theories
Social Sciences & HR
Leadership & Change
Strategy & Performance Management
Industry
Retail
Services
Government & NGOs ?
Sciences: Thought leaders (selected)
Practice: Industry leaders
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Industry
Retail
Services
Governments & NGOs
Practice: Industry leaders
(selected)
^
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Periphery
Center
Information
Decision
Impulse
Command
Reaction Centralist command and control “collapses“ in increasingly complex
environments
Quelle: Gerhard Wohland
on the model,
The BetaCodex: Thinking and working
in the model.
not
Foundation Several decades old Time scale: organization's age
Low degree of decentralization/ empowerment
Differentiation phase
Stagnation within the tayloristic model
Integration phase
High degree of decentralization/ empowerment
Sustaining and deepening of the decentralized model, through generations
Transformation through radical decentralization of decision-making
Pioneering phase
Bureaucratization through growing hierarchy and functional differentiation
Evolution within the decentralized model (culture of empowerment and trust)
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 26
Eine Konsequenz aus dem Kodex.
Planning. Don´t
Companies. Need.
Period.
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 28
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 29 29
Management control cycle
Budget
Strategy
Strategic learning cycle
Annual plan
Control
Management processes in command and control organizations are “straight jackets”
Fixed Performance Contract
“Fixed” performance contract • Period [Fixed]
• Targets [Fixed]
• Compensation [Fixed]
• Plan [Fixed]
• Resources [Fixed]
• Coordination [Fixed]
• Control [Fixed]
• Agreed through [Negotiation]
• Signed by: [Manager/Director]
Source: BBRT
Tayloristic management works like this: As centralistic-burocratic hierarchies, held together through a regime of fixed performance contracts!
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 31
“I will prepare myself and my time must come.”
Abraham Lincoln
The notion of dividing an organization into functions, and then departments, is fundamentally flawed.
But what is the alternative?
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 35
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 38
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 39
The blue pill: Fixed, negotiated targets
Most important competitor
(28%)
Market (25%)
Plan (15%)
Actual (21%)
Target: absolute ROCE in % (here: 15%)
[expected market Ø: 13%]
Plan
Comparison: Plan-Actual
Actual
• Interpretation within the plan-actual-comparison: Plan was outperformed by 6 percentage points > positive interpretation • Better ROCE of the market average and the most important competitor remain unnoticed!
The red pill: Relative, self-adjusting targets
Target: relative ROCE in % (to market)
Most important competitor
(28%)
Market (25%)
Target: „ROCE in % better than market average”
Actual (21%)
• Interpretation within actual-actual compa-rison: Performance was 4 percentage points below competition! > negative interpretation • Absolute assumptions at the moment of planning don´t matter. • Targets always remain updated and relevant!
[independent from expected
market Ø]
Target Actual
Comparison: Market-Actual
Source: Niels Pfläging
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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 43
The case of a radically decentralized organization: Handelsbanken – an extraordinary leadership philosophy
ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share
Consistently – over a period of 30 years – one of the most successful banks in Europe, measured by almost all key performance indicators (e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …)
The most important objective within Handelsbanken Group: “Higher Return on Equity than the average of comparable banks in the Nordic region and Europe.”
Made real through:
• Radical decentralization, which in turn leads to…
• Best customer service • Lowest cost
Alexander V Dokukin
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 44
Customers
600 branch managers (Profit Centers)
12 regional managers
(Invest Centers)
CEO, product firms, treasury, IT etc.
Fast, open information systems
Governance and transparency
Framework for decision making with clear values, limits and relative targets, plus transparency
Freedom and capability to act
“Winning“ culture, combined with the freedom and ability to act
Customer intimacy A large network of self-managed teams with full responsibility for
customer results
Principles
How “radical decentralization“ is being reflected in the company´s organizational structure and decision-making
Leads to maximum customer satisfaction!
Source: BBRT
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 45
Relative target definition through “league tables“ (rankings) – instead of planned, fixed targets and internal negotiation
Bank to bank Return on Equity (RoE)
1. Bank D 31%
2. Bank J 24%
3. Bank I 20%
4. Bank B 18%
5. Bank E 15%
6. Bank F 13%
7. Bank C 12%
8. Bank H 10%
9. Bank G 8%
10. Bank A (2%)
Region to region Return on Assets(RoA)etc.
1. Region A 38% 2. Region C 27% 3. Region H 20% 4. Region B 17% 5. Region F 15% 6. Region E 12% 7. Region J 10% 8. Region I 7% 9. Region G 6% 10. Region D (5%)
Branch to branch Cost/income ratio etc.
1. Branch J 28% 2. Branch D 32% 3. Branch E 37% 4. Branch A 39% 5. Branch I 41% 6. Branch F 45% 7. Branch C 54% 8. Branch G 65% 9. Branch H 72% 10. Branch B 87%
Leads to lowest operational cost!
Relative targets and relative compensation
Continuous preparation/ social control
“On demand“ flow of resources/
dynamic coordination
Principles
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 46
Headquarters/ Region
Branches acquire resources through internal markets
Flexible coordination and resources “on demand“ - instead of allocations and budgets
Customer demand
Branches observe customer demand
Resources (IT, HR etc.)
Branches decide over necessary resource levels
Branch
Branches alone are responsible for efficient
use of resources
Leads to eradicating and avoiding waste!
Source: BBRT
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 47
Variable area “Ceiling”
Bonus hurdle
100%: target
80% of target
120% of target
Base salary
Performance as % of target realization
Salary/ bonus
Common practice: „Pay for performance“ compensation profile with fixed performance contract: Creates maniuplation incentive in any situation!
Bonus limit
Reduction incentive: Lower result even more
Reduction incentive: postpone results to next period
Maximization incentive: Anticipate
results
Actual result #2
Actual result #1
Actual result #3
Performance in relative evaluation
Salary/ bonus
A better model: Result oriented compensation profile with relative performance contracts: No incentive to manipulation.
Linear compensation curve without breaks: variable compensation becomes decoupled from targets
Free from incentive to manipulate
Source: Michael Jensen
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1 very simple principle: Always disconnect compensation from targets. Always.
1. Pay people well 2. Pay people fairly 3. And then do everything possible to take money off peoples minds! All pay-for-performance plans violate that last precept!
Pay-for-performance is an outgrowth of behaviorism, which is focused on individual organisms, not systems - and, true to its name, looks only at behaviors, not at reasons and motives and the people who have them.
I tell Fortune 500 executives (or at least those foolish enough to ask me) that the best formula for compensation is this: Pay people well, pay them fairly, and then do everything possible to help them forget about money.
How should we reward our staff? Not at all! They are not our pets. Pay them well, respect and trust them, free them from disturbance, provide them with all available information and support to perform on the highest possible level. Alfie Kohn, Sociologist
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1 very simple principle: Never use bonuses and incentives. Apply profit sharing and/or shareholding concepts for community.
1 very simple principle: Pay the person. Not the position. Always.
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“I don´t know if it is possible.
What I know: It is necessary.“
Tom Peters
Today we already know for sure it is possible.
And we have also learned how it can be done.
What waiting for?
are we
© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 55
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www.betacodex.org A selection of associates:
Make it real!
Chris Catto christopher.catto@ putneybreeze.com.au Melbourne
Niels Pflaeging [email protected] nielspflaeging.com São Paulo-New York-Wiesbaden
Valérya Carvalho [email protected] Betaleadership.com São Paulo
Silke Hermann silke.hermann@ insights-group.de Wiesbaden–New York
Walter Larralde wlarralde@ on-strategy.com.mx Mexico City
Lars Vollmer [email protected] www.lars-vollmer.com Hannover/Stuttgart