Wednesday, April 18, 2018

Management Tools or Just Fads?

Some of you may remember when these management practices were in vogue: quality circles, Six Sigma, Business Process Reengineering, forced rankings. Indeed, over the years, business managers have embraced certain “best practices” that have turned into fads, but then they moved on to the next best thing. A few of these practices – like 360-degree feedback – have had staying power. But many have come and gone.

I was reminded of these fads when I read a book that David Burkus (2016) recently published, in which he describes 13 of the latest management tools. He does a good job summarizing what he calls this new set of management tools: “… the redesigned management tools … may seem odd, but they are effective. And decades of research in human psychology reveal why: they work because they are different and better. Indeed, their differentness strengthens the case that we need reinvention.” (p. 7)

What are these new tools and trends? He devotes a chapter to each one: Outlawing e-mail, putting customers second, losing the standard vacation policy, paying people to quit, making salaries transparent, banning noncompetes, ditching performance appraisals, hiring as a team, writing the org chart in pencil, closing open offices, taking sabbaticals, firing the managers, and celebrating departures. He also gives examples of companies that have apparently implemented these tools successfully, and he cites relevant research to demonstrate the effectiveness of these tools, while encouraging companies to continue experimenting with new tools and methods.

I agree with Burkus on the importance of experimentation with new tools. However, applying these tools uncritically may in fact tend to make them more like “flavors of the month” and fads rather than lasting practices. Professor Jeffrey Pfeffer has written extensively about the dangers of management fads (Pfeffer and Sutton, 2006), and he urges companies to answer some fundamental questions first. Building on his work, the following are questions that I would urge managers to answer before they decide to implement these other current management practices or tools:
1.     What is the objective or outcome that the company wants to achieve by implementing this practice or tool? Why are you even considering it? Be careful not to have a solution in search of a problem.
2.     Will the solution in fact address the problem that your company has or help achieve this outcome?
3.     What is the logic or evidence (other than anecdotal or some consultant’s recommendation) that this practice or tool is effective? Simply benchmarking is not sufficient since companies and industries differ significantly in terms of their context.
4.     Does the practice seem to fit with the current or desired culture? Of course, some practices are introduced precisely to signal a culture change. On the other hand, if the practice is so counter to the current culture, some groundwork needs to be laid first.
5.     What is the readiness level of the company to take on such a practice? Since research shows that the majority of change efforts fail, managers need to be careful that the conditions are in place for this practice to succeed, such as the capabilities of the workforce and managers, as well as the number of changes that the organization has absorbed (that may lead to change fatigue).
6.     What are the downsides of implementing the practice even if it is a good idea overall? What are some major unintended consequences?

Let’s take two of these practices and examine each more carefully. The first is his recommendation to make salary transparent. Some companies have tried this while many are reluctant. There is no question that in this day and age, companies need to be more forthcoming about their pay practices. At the very least, that means communicating clearly to employees what the company’s compensation philosophy is, and how pay is set throughout the organization, e.g., salary ranges for different levels. There are organizations (such as branches of government) where employees know everyone’s salaries because the criteria for pay and promotions are based on tenure and rank – not performance. In some types of sales, the commissions that salespersons make are also well known. However, in the vast majority of organizations that are trying to establish a meritocracy, the challenges for total salary transparency are enormous. So far, the evidence for the effectiveness of full pay transparency is anecdotal. Companies also need to consider the downsides or unintended consequences of implementing such a practice. In discussions with managers in various companies (as well as a group of executive MBA students in Singapore), I get almost unanimous agreement that their companies are not ready for such total transparency.  In situations where companies have not achieved a true meritocracy (which is probably the case in a majority of organizations), revealing every employee’s salary will only breed resentment and perceptions of unfairness.

The second practice is around “firing all managers.” According to Burkus:
“Some of the most successful companies have opted to fire all their managers. Others have found ways to push some of the management function down to the level of those who are being managed. Research suggests that employees are most productive and engaged when they, and not their manager, control their destiny.” (p. 176)

Many years ago, the common management wisdom was that a manager’s span of control should be no greater than five. Larger than that and a manager would not be able to devote the time to “manage” his or her direct reports effectively. These days, some CEOs have direct reports of over 20. At Google, Schmidt and Rosenberg (2014) report on their rule of seven—managers should have a minimum of seven direct reports. One reason for pushing the span of control outward is to prevent managers from doing too much micromanaging, thus providing more autonomy for employees (which is Burkus’ point). Organizations like Zappos, Dupont and Whole Foods have experimented with so-called “self-managing teams” but to suggest that this will work universally can be a dangerous prescription. In some cases, less experienced workers may need strong coaching from their supervisor. In fact, Pfeffer (2007) has pointed to organizations like Southwest Airlines that has one of the highest ratios in the industry of supervisors to those being supervised. In other cases, employees’ needs and preferences might clash with this approach. When Zappos implemented its workplace hierarchy, for example, turnover rates jumped approximately 15-20%.

In addition, there are unintended consequences to this trend towards flattening or delayering. In an interesting analysis, Wulf (2012) investigated whether this practice has in fact occurred in corporations. She sampled 300 large US firms over a 15-year period and found that indeed flattening has occurred, at least at the higher levels of organizations. She found, for example, that the number of firms with COO positions decreased by around 20 % over this period, and the number of positions between division head and CEO decreased by about 25 %. She also found that the number of positions reporting directly to the CEO almost doubled (from 4.5 to almost 7), and more recent data suggest that this trend is continuing (with average span of control up to 9.8).

However, she also found that decision-making actually became more centralized, and CEOs of these flattened companies became even more hands-on. Perhaps part of the reason for this is her finding that the composition of the types of positions reporting to the CEO has also changed. That is, the C-suite started to expand to include executives with global functional responsibility in such areas as human resources, information technology, and marketing. If this is in fact a result of flattening, lower-level managers may feel more disempowered, and the tensions between headquarters and subsidiaries increasing. Her finding is not surprising given the trend in global organizations to “globalize” and integrate certain core functions such as human resources and supply chain. This has led to multiple tensions between the corporate center and the subsidiaries and operating units, and occasional confusion as to whether this is part of a pendulum swinging back to centralization from decentralization.

Another unintended consequence of flattening might be an increased workload for employees. As Pfeffer (2007) has pointed out: “Since people have been taken out of the organization, those that remain have more to do unless something has been done to decrease the total workload. And there are fewer people in the organization to ensure coordination, reflection, and learning.” (pp. 34-35)
I am not suggesting that companies should shun these emerging management practices. Some of them might actually stand the test of time and effectiveness. Companies might even want to introduce some of these tools as a vehicle to provide a jolt to the organization or to signal its willingness to think outside the box.

Let’s take a current hot trend towards creating more agile and fast teams. Erik Ries (2017), who was one of the first to codify this approach and apply it to start-ups, has been in much demand with many companies lately, including such large Fortune 500 companies like GE and General Motors (as reported in Fortune, March 2018 issue).  He has tapped into an important need that many companies large and small are facing today. In a 2017 Deloitte survey of more than 10,000 business and HR leaders across 140 countries, 94% report that agility and collaboration are critical to their organizations’ success, but only 6% say they are highly agile today. Implementing this “agile team” approach might very well help an organization that is faced with slow decision-making, silo mindsets and a lack of collaboration.

Nonetheless, I would recommend starting out by answering the six questions above carefully before deciding to introduce a new tool to your team or organization. It is also important to experiment and pilot. And if you are part of a global company and are considering some of these practices, it is also important to make sure that these practices will work globally.

Burkus, D. (2016). Under New Management: How Leading Organizations Are Upending Business as Usual. Boston: Houghton Mifflin Harcourt.

Pfeffer, J. (2007). What Were They Thinking? Unconventional Wisdom About Management. Boston: Harvard Business School Press.

Pfeffer, J. and Sutton, R. (2006). Evidence-Based Management. Harvard Business Review, 84 (1), January.

Reis, E. (2017). The Startup Way: How Modern Companies Use Entrepreneurial Management to Transform Culture and Drive Long-Term Growth. New York: Currency.

Wulf, Julie. (2012) The Flattened Firm: Not as Advertised. California Management Review, 55(1): 5–23.

Sunday, March 18, 2018

Headquarters Versus Local Overseas Offices - Worlds Apart?

Here are some comments I have heard over the years from executives sitting in regional or headquarters locations about local managers in their subsidiaries:
·       They don’t seem to want anything to do with Corporate.
·       Why can’t they trust us?
·       Don’t they see that they have to follow corporate rules and that they are part of a bigger company?
·       Why do they think their problems are so unique?

At the same time, here are some comments I have heard from these local managers:
·       Doesn’t Corporate understand that you just can’t have a cookie-cutter, one-size-fits-all approach?
·       We understand the local markets much better than they do!
·       These corporate initiatives will not always work in every market.
·       Corporate always wants to have control; they don’t want us to be independent and think for ourselves.

And then there is that recent study of over 1000 Asia-based executives in various industries, organizations, and functions by the Corporate Executive Board and Russell Reynolds (as reported in the April 2015 issue of Harvard Business Review). The following are three of several statements with which these executives were asked to agree or disagree:
·       Headquarters understands the realities of doing business in Asia.
·       Headquarters makes decisions aligned with the regional context.
·       Headquarters consults local leaders before setting regional strategy.
In all three statements, the percentages of executives agreeing to this statement were in the low teens to twenties, regardless of whether these Asia-based leaders were in the local organization or whether they were in headquarters. The specific percentages were 12, 14, and 14 respectively for the local Asia-based leaders and 20, 21, and 28 for the Asia-based leaders in headquarters.
These different points of view between HQs and local executives suggest not only some gaps in understanding each other, but potential missed opportunities. For example, subsidiaries might not be taking advantage of resources and expertise from HQs or from other markets that might help them improve their subsidiary performance as well as fight competition in their markets. HQs might be missing opportunities to learn about local practices that might be fruitful to implement in other markets.
In my experience, the tension between headquarters and local offices seems to be getting bigger, especially as global companies continue to “globalize” some of their functions, such as Supply Chain, Finance, Marketing and HR. Furthermore, when subsidiaries do take initiative, as Birkinshaw et al. (1998) point out: “… initiative is often seen by parent managers as subversive, that is, evidence of subsidiary managers acting in their own or their country’s interests rather than in the interests of the MNC as a whole.” (p. 235)

I was recently in Singapore to teach a class, and my students (most of whom were executives of large global companies heading their subsidiary or region) echoed most of what I heav been hearing over the years about the perceived lack of understanding or flexibility from Headquarters.

We all know that it is in the nature of organizations to create divisions of labor and specialization for the purpose of clarifying roles and responsibilities and improving efficiencies. These days, organizations require functional experts and sophisticated organizational designs to adapt to complexities in the business environment. The unintended consequence of such differentiation, however, is the creation of separate identities and us-versus-them mindsets across the organization. We see Marketing and Sales at loggerheads at times, or Finance and HR, or R&D and Supply Chain. Some corporations have had pendulum swings from centralization to decentralization and vice versa. In one corporation that had traditionally allowed full autonomy in its subsidiaries as long as they delivered the results, the CEO was surprised to learn that country general managers had even gone so far as to change the look and feel of the company logo. This might have been a trivial matter for some, but the corporation was trying to establish a global brand image, and the inconsistency with which its brand name was being positioned in different countries did not help.

In his book about his transformation of IBM and its survival (Gerstner, 2002), former IBM CEO Lou Gerstner writes:
“One of the most surprising (and depressing) things I have learned about large organizations is the extent to which individual parts of an enterprise behave in an unsupportive and competitive way toward other parts of the organization. It is not isolated or aberrant behavior. It exists everywhere – in companies, universities, and certainly in governments. Individuals and departments (agencies, faculties, whatever they are called) jealously protect their prerogatives, their autonomy, and their turf.” (p. 249)

These structures and processes represent one set of factors that influences the nature of the relationship between headquarters and their subsidiaries and may account for the lack of mutual understanding of local and of corporate needs respectively. Geographical as well as cultural distance only exacerbates this. As functions have become globalized, defining what can be decided globally versus locally needs to be debated and clarified. For example, some years ago, one corporation decided to implement its business-casual dress policy worldwide. In its Tokyo headquarters, managers there simply ignored the corporate edict; in Tokyo’s business environment at that time, men and women tended to dress more formally and local managers considered it unthinkable to “dress down.”

More recently, rather than considering whether to “globalize” or not in general, many firms are making these determinations both as a whole (e.g., creating a global brand, establishing a global culture) as well as with specific value chain activities (e.g., establishing global relationships with a few advertising agencies, rather than having each subsidiary decide which advertising agency it wants to use). Rugman et al. (2011) have defined four such distinct value chain activity sets: innovation, production, sales and administrative.

Another set of factors has to do with the nature of the local environment as well as the nature of industry forces (Enright and Subramanian, 2007). This will influence whether the company adopts a one-size-fits-all approach or customized solutions by the local subsidiary. Companies in certain industries like technology (e.g., Microsoft) tend to define the corporate-subsidiary relationships differently than companies in other industries. A third set of factors lies with organizational capabilities in two specific competencies: global mindset, and skills in influencing without authority to produce win-win solutions.  In my experience, few organizations have made a determined effort to build these capabilities in their managerial work force, or to hire and promote individuals who demonstrate these skill sets. Furthermore, organizations, when assigning managers to global roles, don’t always consider these capabilities as selection criteria.     

Some organizations have created mechanisms and built bridges to narrow this differentiation and encourage integration. For example, many large corporations have modified their reward systems to reinforce collaboration and cooperation across divisions; others have focused on developing a corporate culture which helps employees to identify with the firm (e.g., “I’m an IBMer”; “I’m a Merckie”). However, it can seem like an uphill battle at times.

In fact, many organizations, especially those that have a presence in many countries, are constantly looking to create the “glue” that will bind employees’ hearts and minds together and will transcend country or national culture differences. Establishing such a global corporate culture can be difficult especially for relatively young corporations (those so-called born-global companies such as Uber) or for corporations expanding its overseas presence (such as Hyundai and Haier). Those that have been successful have established strong cultures that transcend boundaries; talk to managers in some of these multinational companies, and you will hear them refer to the Ford Way, or the Unilever Way, or the Toyota Way.
While there has been much written about the role of headquarters in reaching out to the subsidiaries, there has not been as much advice to subsidiaries, and what local managers can do. Birkinshaw et al.’s article (2007) is one of the few that have examined what subsidiaries could do to get headquarters to pay more attention to them. They make the argument that “A subsidiary’s degree of decision-making autonomy has no meaningful effect on the level of executive attention it receives.” In their research, they asked subsidiaries how they were getting HQs to pay more attention to them. For example, they asked, “How does a subsidiary which lacks weight attract the attention of management?” They concluded that subsidiaries can make two kinds of efforts: initiative taking (e.g., developing new products, penetrating new markets) and profile building (e.g., supporting corporate objectives, creating a center of expertise. Unfortunately, subsidiaries that are not considered strategically important may not get the level of attention, and therefore the resources, they need. The lost opportunities that might result include competition taking market share away from the subsidiary, business ventures that if nurtured might grow the subsidiary significantly, or attracting local talent to help build the human capital in the subsidiary.

Here are five recommendations for those of you in subsidiaries who may be somewhat frustrated with the lack of understanding that your regional or headquarters bosses have. First, understand where your bosses are coming from, their pressure points, and what’s driving them. As Marshall Goldsmith has often reiterated when explaining upward influence, consider your boss as a customer. Second, share information willingly and proactively, not just with your bosses but also with your peers in other countries. In one corporation, a country manager from a South American subsidiary suggested a business solution he had found useful to his colleague from the corporation’s African subsidiary. A year later, the African subsidiary had successfully implemented this solution and the South American manager got recognition for his contributions by being promoted to a regional role.

Third, find common ground on issues. Rather than repeating the refrain that your country is unique and that corporate practices will not work in your country, find those corporate practices that will work and highlight those. Find local actions you can take that build on the subsidiary’s capabilities and that can be applied in other markets.  Fourth, remind yourself that you are a corporate citizen, a member of your global company, and not just an employee at a subsidiary. Remember that in your country, many see you as the representative of your global company. Make an effort to understand the strategic objectives of the company, and make sure you demonstrate that what you are doing aligns with these objectives. As Birkinshaw et al. (1998) point out, “For initiatives to be accepted by the corporate headquarters, they must be aligned with the MNC’s existing strategic priorities, otherwise they are likely to be viewed as self-interested behavior.” (p. 236)

And fifth, proactively initiate actions to get headquarters to understand the country perspective. Here are some examples: provide information to regional or corporate management on local consumer or competitive information; invite corporate executives to visit your subsidiary; send some local talent to headquarters to learn, network and to do some indirect PR about your subsidiary; offer to host a regional meeting in your subsidiary.

Birkinshaw, J. et al. (1998). Building Firm-Specific Advantages in Multinational Corporations: The Role of Subsidiary Initiative. Strategic Management Journal, 19, 221-241.

Birkinshaw, J. et al. (2007). Managing Executive Attention in the Global Company. MIT Sloan Management Review, 48 (4), pp. 39-45.

CEB and Russell Reynolds Associates (2015). Hello? Anyone in HQ Listening? Harvard Business Review, April.

Enright, M. and Subramanian, V. (2007). An Organizing Framework for MNC Subsidiary Typologies. Management International Review, 47 (6), pp. 895-924.

Gerstner, L. (2002). Who Says Elephants Can’t Dance? New York: HarperBusiness.

Rugman, A. et al. (2011). Re-conceptualizing Bartlett and Ghoshal’s Classification of National Subsidiary Roles in the Multinational Enterprise. Journal of Management Studies, 48 (2), pp. 253-277.