The Leader's Dilemma E-Book

Jeremy Hope

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 617

Veröffentlichungsjahr: 2011

Beschreibung

Drawing on their work on performance management within the 'beyond budgeting' movement over the past ten years, including many interviews and case studies, Jeremy Hope, Peter Bunce and Franz Röösli set out in this book an executive guide to building a new management model based on eight key change management issues: * 1. Governance: From rules and budgets to purpose and values * 2. Success: From fixed targets to relative improvement * 3. Organization: From centralized functions to customer-oriented teams * 4. Accountability: From narrow targets to holistic success criteria * 5. Trust: From central control to local autonomy * 6. Transparency: From closed information to open book management * 7. Rewards: From individual incentives to team-based reward * 8. Risk: From complying with rules to understanding pressure points This book is about rethinking how we manage organizations in a post-industrial, post credit crunch world where innovative management models represent the only remaining source of sustainable competitive advantage.[i] The changes suggested by the authors will enable and encourage a cultural climate change that will help organizations to attract and keep the best people as well as drive continuous innovation and growth. Above all, The CEO's Dilemma is about learning how to change business - based on best practice and innovation drawn from leaders world-wide who have built and managed successful organizations.

Leseprobe

Contents

Cover

Title page

Copyright page

Foreword

Preface

Some Definitions

Introduction: The Organization as an Adaptive System

The decline and fall of “command and control”

Rethinking the management model

An alternative model based on adaptive systems

Chapter 1: Principle #1 – Values: Bind People to a Common Cause, Not a Central Plan

The value of values at Southwest Airlines

Implementation guidelines

Chapter 2: Principle #2 – Governance: Govern Through Shared Values and Sound Judgment, Not Detailed Rules and Regulations

The limitations of risk management at BP

Implementation guidelines

Chapter 3: Principle #3 – Transparency: Make Information Open and Transparent; Don’t Restrict and Control It

The power of radical transparency at Beth Israel Medical Center

Implementation guidelines

Chapter 4: Principle #4 – Teams: Organize Around a Seamless Network of Accountable Teams, Not Centralized Functions

How accountable teams transformed Leyland Trucks

Implementation guidelines

Chapter 5: Principle #5 – Trust: Trust Teams to Regulate and Improve Their Performance; Don’t Micro-Manage Them

Devolution: the lessons from US public schools

Implementation guidelines

Chapter 6: Principle #6 – Accountability: Base Accountability on Holistic Criteria and Peer Reviews, Not on Hierarchical Relationships

Why everyone is confused by “accountability”

Implementation guidelines

Chapter 7: Principle #7 – Goals: Set Ambitious Medium-Term Goals, Not Short-Term Fixed Targets

“Be the best”: why Handelsbanken is consistently one of the best performing banks

Implementation guidelines

Chapter 8: Principle #8 – Rewards: Base Rewards on Relative Performance, Not Fixed Targets

To change mindsets, change rewards: the lessons from Groupe Bull

Implementation guidelines

Chapter 9: Principle #9 – Planning: Make Planning a Continuous and Inclusive Process, Not a Top-Down Annual Event

Moving beyond budgeting at Tomkins

Implementation guidelines

Chapter 10: Principle #10 – Coordination: Coordinate Interactions Dynamically, Not Through Annual Budgets

From “make-and-sell” to “sense-and-respond”

Implementation guidelines

Chapter 11: Principle #11 – Resources: Make Resources Available Just-in-Time, Not Just-in-Case

Rethinking cost management at Sydney Water

Implementation guidelines

Chapter 12: Principle #12 – Controls: Base Controls on Fast, Frequent Feedback, Not on Budget Variances

Ambition to action: performance management at Statoil

Implementation guidelines

Chapter 13: Implementation Insights

How do you change management mindsets?

Implementation insights

Chapter 14: Make Management Change Your Legacy

Notes

Index

This edition first published 2011

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Foreword

This book addresses a paradox about the nature of management in large organizations. On the one hand, the pace of change in the business world today feels faster than it has ever been. There is plentiful evidence of corporate failure, there is widespread distrust of senior executives, and there are many observers calling for dramatic changes in how organizations are run. On the other hand, the standard “command and control”-based model of management, the one that has served us for more than a century, continues to dominate the business landscape.

This is not a new paradox. Every generation of management researchers and consultants argues that we need to make profound changes in how work gets done, and since at least the 1930s the primary emphasis has been on such themes as empowering workers, flattening hierarchies and creating greater levels of trust. And, yet, for all the careful research, and for all the evidence that some companies are experimenting with new ways that appear to offer a better way, the amount of real and lasting change is small. When we look at the management systems for getting work done in large organizations today – how we motivate people, control activities, and set objectives – they are little different from the ones used by our grandparents.

Some management books try to sidestep this paradox: they focus on the things that are changing in the business world and leave readers to figure out what to do differently; or they provide a new perspective on the paradox. Other books focus on one part of the story only, perhaps giving some new techniques for motivating employees or measuring performance. But in The Leader’s Dilemma Jeremy Hope, Peter Bunce and Franz Röösli avoid any such tactics.

First of all, they take on the whole challenge – the organization as a complex system of interconnected parts – and they make it clear that you cannot just cherry-pick the ideas that suit you. Rather, you have to see how all the different parts of the story connect to each other, and think through the consequences of your actions. Second, they confront the paradox that large organizations seem immune to the changes that they need to make. Their argument is alluded to in the subtitle of the book: How to build an empowered and adaptive organization without losing control. The way forward, they argue, lies on the knife-edge between anarchic self-organization on the one side, and traditional command and control on the other.

The Leader’s Dilemma lays out an agenda for change in large organizations built around 12 principles, such as “bind people to a common cause, not a central plan” and “make planning a continuous and inclusive process, not a top-down annual event.” All of these principles will be familiar to a business audience, but the point is that while the words are frequently used, they are rarely enacted. So Hope, Bunce and Röösli provide lots of examples of how these principles can be applied in practice: well-known companies like Southwest Airlines and Whole Foods Market, and lesser-known companies like Sydney Water Corporation and Tomkins.

Their agenda is all about putting people first – about building an adaptive system around the needs and aspirations of employees, not treating the organization as an “obedient machine.” The curious thing about this agenda is that it didn’t emerge from an HR conference, or from a class in organizational behavior at a business school; it came out of an industry group called the “Beyond Budgeting Round Table,” or BBRT, founded by Jeremy Hope, Robin Fraser and Peter Bunce a decade ago.

The BBRT is a group of finance and accounting professionals, all with personal experience of the limits to traditional top-down, fixed-target based budgeting. Inspired by a few enlightened companies such as Svenska Handelsbanken, they sought to find alternatives to the traditional budgeting process. But such is the interconnected nature of large organizations that a rethinking of budgeting quickly led to a rethinking of the entire management architecture of large organizations.

This book is the result of that process. The authors are professionals who wouldn’t normally have started from a “people”-focused agenda but ended up there because it was the only possible place to end up if you want to make organizations more effective over the long term. The authors also understand deeply how difficult it is for those in positions of power to loosen up on the levers of control. So this is an important book: it offers a synthesis of a lot of recent thinking about how to improve management in large organizations, and it provides a clear agenda for change. If you are interested in building an adaptive and progressive company, this book gives you the ideas and inspiration to make it happen.

Julian BirkinshawProfessor of Strategic and International ManagementLondon Business School

Preface

One summer Albert Einstein’s students complained that the questions on this year’s exam paper were no different from those on the previous one. “Well, yes,” said Einstein, “the questions were indeed the same. What the students needed to understand, however, was that the answers had changed!” If the question on today’s management exam paper is “How does the way we manage need to change to meet today’s challenges?” then the answers are indeed different from those most leaders would have given a few years ago.

The traditional “command and control” management model was never perfect. In an industrial age when suppliers could sell all their output to eager customers, business leaders could “plan and control” their way to the future. Annual plans and budgets were negotiated with the corporate center; all divisional and line managers had to do was to follow the plan and meet the numbers. This model was already in trouble in the 1990s as customer loyalty collapsed in the wake of globalization, privatization and the Internet revolution, but in the credit crunch of 2007–9 it turned into a liability as organizations failed to anticipate and respond to the economic eruptions that engulfed world markets. The trouble is that increasing levels of uncertainty and turbulence are here to stay.

Another crucial change is that the next generation of managers weaned on Facebook and YouTube are used to sharing just about everything with their families and friends. But when they enter the workplace they are faced with antiquated systems and closed mindsets that make transparency and sharing so difficult. There is little doubt that to attract and keep the best people in the future, leaders will need to make their organizations more engaging, transparent and fulfilling places to work.

This book is about rethinking how we manage organizations in a post-industrial, post-credit crunch world where, according to strategy guru Gary Hamel, innovative management models represent the only remaining source of sustainable competitive advantage.1 It is also about releasing people from the burdens of stifling bureaucracy and suffocating control systems, trusting them with information and giving them time to think, reflect, share, learn and improve.

It is an outcome of the work we have been engaged in for over 10 years in the “beyond budgeting” movement (we use “budgeting” as another term for “command and control” management). In our 2003 book Beyond Budgeting Jeremy Hope and Robin Fraser set out 12 principles that represented the “best of best practices” at that time. These have stood the test of time. This book provides more depth and case examples based on these principles. We have also integrated these principles with “systems thinking” and illustrated how they enable organizations to become more empowered and adaptive.

This book is aimed at leaders who want to change their management cultures and build organizations that will adapt, improve and endure for generations to come.

No book is completed without the help and support of many people. We would like to acknowledge the support of Robin Fraser, Steve Player, Bjarte Bogsnes and Steve Morlidge, who have not only contributed to this book but also been instrumental in pushing the boundaries of Beyond Budgeting. We would also like to thank many Beyond Budgeting members who have generously given their time to facilitate case studies and interviews that we have drawn on extensively throughout this work. Also, our publisher Rosemary Nixon and her team have given us expert guidance throughout the process. Our sincere thanks go to them all.

Some definitions

It is important that we all share the same understanding of what key terms mean throughout this book. For example, many people find it difficult to distinguish between a budget, a target, a goal and a forecast, yet a clear definition of these terms as they are applied in practice is crucial for designing and implementing any management model. It is also fundamental to reading this book. Our definitions are set out below and are applied throughout.

A management model describes how an organization sets goals and strategy; how it motivates and rewards people; how it steers its course through plans, budgets and forecasts; how it makes decisions and allocates resources; and how it measures and controls performance.

A command and control management model assumes that an organization has many layers of management and that strategy and key decisions are highly centralized. Targets, plans, budgets, resources and controls flow down the hierarchy in the form of annual instructions, and subsequently flow back up the hierarchy in the form of results. The annual budget coordinates all plans and resources and is the “glue” that holds the management model together. We use the word “budgeting” as a generic term for command and control management, and thus “beyond budgeting” means beyond command and control toward a management model that is more empowered and adaptive.

An adaptive management model assumes that an organization has few layers of management and that strategy and key decisions are devolved to front-line teams who have the scope and authority to respond rapidly to emerging threats and seize new opportunities as they arise. Fixed plans and budgets are usually replaced with more flexible systems including quarterly business reviews and rolling forecasts. The glue that holds the organization together is fast, open and transparent information.

A target is usually short-term (often one year) and fixed. It invariably becomes a fixed performance contract between one organizational level and another. In the cultural climate of many organizations, such contracts or commitments must be met, which often leads to undesirable behavior.

A goal is usually aspirational and set over the medium term (two to five years). A goal should stretch managerial ambition so that an organization or work unit maximizes its performance potential, as opposed to making incremental performance improvements over the previous period.

A budget is a plan expressed in financial terms against which performance will be measured. It is a tool for allocating scarce resources and for committing managers to a predetermined financial outcome, usually on an annual basis. It also acts as a constraint on spending and a basis for evaluating management performance and rewards. A budget also defines authority levels and influences how managers behave in large organizations.

A plan is a set of actions that derive from a strategic review and aim at improving the performance of the organization or any of its subsets such as divisions or frontline teams.

A forecast is a financial view of the future derived from a manager’s best opinion of the “most likely outcome,” given the known information at the time it is prepared. Thus it should be unbiased, reflect all known events (good and bad), and, of course, be realistic. It should also be a moving window (or rolling forecast) that always looks between 12 and 24 months ahead.

INTRODUCTION

The organization as an adaptive system

What ultimately constrains the performance of your organization is not its operating model, nor its business model, but its management model.1

Gary Hamel, The Future of Management

Most of you will remember Aesop’s fable about the tortoise and the hare who decide to have a race on a sunny day. The brash, confident hare thinks he has won the race before it even starts and decides to have a nap under a tree half way through. But when the hare awakes, the tortoise is at the finish line.

Too many business leaders think and act like hares. They think they can grow shareholder value at unrealistic rates each year by setting aggressive targets and incentives and then (like the hare) “predict and control” their future results through detailed budgets and short-term decisions. Tortoises don’t make such promises, predictions or assumptions. Instead they keep their eye on the path ahead and continuously improve their performance. Tortoises always win in the end. Their aim is to adapt to changing conditions, beat their peers and endure over long periods of time. The best organizations are adaptive systems that continuously learn, adapt and improve.

Unfortunately, in the business world, when tortoise-type organizations appoint new leaders they can turn into hares. Royal Bank of Scotland (founded 1727), Citigroup (1812), Lehman Brothers (1850), Washington Mutual (1889), Merrill Lynch (1914) and AIG (1919) had all adapted and endured for, in most cases, a century or more but collapsed when a new leadership generation changed the way they were managed. The result was the credit crunch of 2007–9, when trillions of dollars were wiped off corporate balance sheets, leaving governments around the world with no option but to step in with taxpayers’ funds to avoid a catastrophic collapse of the financial system.

What followed was the worst recession since the 1930s. Everyone is asking the same questions: How did it happen? How did the banking sector, full of mature organizations with long histories of steady growth and run by highly professional people, suddenly collapse? Why did governance and regulatory systems fail so badly? Who is accountable? What lessons can we learn? And how do we prevent it from happening again?

Commentators have pointed their fingers at naïve central bankers, inept regulators, unrealistic ratings agencies, passive politicians, greedy executives, aggressive salespeople, unscrupulous mortgage brokers and short-selling hedge funds. While all these actors in this tragedy (or was it a farce?) are culpable in one way or another, the roots of the crisis lie elsewhere. They are deeply embedded in the management model itself. Hijacked by financial engineers a few decades ago, lent credence by academics and pseudo-management science, and seized upon by macho leaders and private equity partners, it was a slow-burning fuse waiting to explode.

The harbingers of this crisis were visible several years ago when Enron, WorldCom and many other large corporations collapsed, triggering the Sarbanes-Oxley (SOX) legislation. Like today, fingers were pointed at greedy executives and inept regulators but, also like today’s crisis, the root causes lay in a corrupt culture and a flawed management model.

If you doubt this conclusion, think about how the typical management model works.2 Like the hare in the fable, leaders sit down once a year and plan the annual race: “What target will excite the market and boost the share price? Fifteen percent growth in earning-per-share feels good, so that’s what we’ll choose.” The next step is to cascade this target down the organization so each division, business unit, function and department owns a piece of it. Tough negotiations take place as the less pliable managers protest that such growth is impossible. But most meekly accept the target and hope for the best. The incentive scheme helps to win them over. Once the budget is agreed the leadership team, just like the hare, thinks the race is over. They have done their job. Investors like the target and the share price responds favorably. Execution is a given.

The trouble is that this “predict and control” view of management is increasingly unhinged from reality. What happens if customer demand takes an unexpected turn for the worse (or even for the better)? What happens if there is a fire or flood, or a key supplier suffers a serious problem? What happens if a new competitor enters the market or an existing competitor changes prices or introduces a new “killer” business model? What happens if commodity prices, interest rates or inflation indexes gyrate up or down? In 2008, who predicted that the price of oil would drop from $147 per barrel to under $40 within six months, or that consumer demand for cars and property would fall by 30 to 40 percent within a similar period? There are many uncertainties that can derail the most carefully crafted targets, plans and budgets, and they are becoming more common and exaggerated over time. Many leaders have been forced to reset and recalibrate targets and budgets many times as they have tried to maintain some semblance of control.