Perspectives

Why ‘Good Management’ is bad and ‘Mad Management’ is the answer

THE FOUNDATION FORUM

27th June 2018. WRITTEN UP WITH THE HELP OF SIMON CAULKIN

To download a PDF of this write up, please click here: Why ‘Good Management’ is bad and ‘Mad Management’ is the answer

steering

 

For a long time we thought the Earth was flat.  But if you’re faced with a mix of what looks obvious and what everyone else seems to be convinced by, you have to be a pretty strong character with an unusual degree of insight to go another way.

Let us put it to you that this same degree of mistaken herd-like belief applies to the way we manage our organisations and institutions today.  Maybe, instead of being a highly sophisticated super-species, we are still early in our evolution when it comes to running things with very large numbers of people in them.

Let us give you an example.  In most organisations this success is achieved by setting higher sales targets, promising people lots of money if they hit them and shouting at them if they don’t.  Which sounds obvious.  And it works too, for a while.  It only becomes tricky when the sales push goes beyond what can be comfortably achieved with willing customers.  At that point you get to high pressure sales tactics, manipulating people to get a yes, and then to targets like selling 8 products per customer and illegal ways to meet them because the consequences of failing, or the social difficulty of challenging the norm, are both more painful than the prospect of being found out.

Approaches that are literally accepted wisdom can become toxic. But this Forum wasn’t just about criticising.  We had a conversation containing hope, illumination, constructive suggestions and examples of success.

Our three speakers brought unusual ideas rooted in experience and the real world.  They weren’t idealistic start-up fiends!  They brought ideas that sound bold and unusual which in fact lead to sensible, useful and productive outcomes. We had…

 

Pernille Sahl Taylor, Chief Communications Officer at Swedish Bank Handelsbanken, which is 147 years old, publicly quoted, immensely commercially successful and utterly unconventional.  It is largely unheard of despite having 208 UK branches and a significant presence in six countries. Since the early 1970s it has been run very unconventionally by the standards of any business not just a bank.  It gives local branches autonomy within their area to choose their customers, decide what to lend, what to charge and how to staff up including dealing with all customer types, from individuals to small businesses to vast corporates. Handelsbanken has only one target – for return on equity to be better than the average of its sector, something the bank has achieved every year since 1973 – and beyond that, nothing.  No targets and no budgets because they believe these encourage unhelpful behaviour.  This is just the tip of a very unusual iceberg.  They are understated but we have much to learn from them

David Alexander, a Director at Centrica, former MD of their Home Services Division, and more unconventional than his titles might sound.  He has led innovation including the Uber meets Plumbing mash-up that is their Local Heroes service (https://www.localheroes.com/) and he has developed what he describes as the joy of imperfect management as a way to help people find their human common sense and confidence at work, another obvious sounding but rare occurrence.  Currently David leads a number of businesses in Centrica that resolve 550,000 plumbing domestic ‘emergencies’ and 600,000 heating breakdowns per year.

And our very own Simon Caulkin, the immensely respected business writer, who showed us why everything we know about management is diametrically wrong.  He is former Management Editor at the Observer, an early Editor of Management Today and a widely published commentator who we have known for many years, great at showing how what’s accepted is not what’s helpful, for business and for society too.

These are big questions but they matter assuming that we want to get beyond the equivalent of Stone Age management.  Where did we get to on the night?

 

Management Madness.  The discussion that followed, summed up by Simon Caulkin

From the sophisticated heights of the 21st century it’s easy to condescend to our superstitious ancestors. As Forum chair Charlie Dawson noted, time was when bien pensants would have shuddered at crazies who denied that the earth was flat, and it took a fundamentalist fanatic like Galileo to advance the self-evidently barking idea that the sun and not the earth was the centre of the universe.

Yet although we are massively better informed about the physical world today, future generations may marvel at our one-dimensional notions of our humanity, and in particular how simplistically, even dangerously, it uses them in management – the vital technology of getting things done in organisations.

They might wonder at the idea that management could be thought of as a science, like physics, and that the business cosmos revolved around the shareholder. They might think it weird that a discipline that presents itself as hard-nosed and pragmatic is in fact the opposite, based not on empirical research about ‘what works’ but on ‘what would work if certain assumptions were true’: the two most important being that the purpose of companies is to maximise shareholder value (‘the dumbest idea in the world’ – Jack Welch), and that all human beings are motivated uniquely by economic self-interest and opportunism. No wonder Prof John Kay once remarked that our knowledge of management was about where medicine was in the mid-19th century.

In different ways all three speakers at a well-attended and attentive late-June Forum took aim at the absurdly unrealistic view taken by conventional management of the human element in business.

 

For David Alexander, a director at Centrica, the target was perfectionist notions of leadership that put more people off than they inspire – which is ‘a great shame, because the reward in business is not from the few perfect leaders and instead from the many who choose to become good, imperfect ones’.

(There is heavyweight support for this position: Peter Drucker once said that organisations needing super-humans to run them could never survive, and Warren Buffett more cynically that you should only invest in businesses that an idiot could run, ‘because one day an idiot will’. The withering conclusion of top Stanford researcher Jeff Pfeffer is that most of today’s utterings about leadership have more in common with lay preaching than social science.)

Good imperfect leaders, said Alexander, have qualities that are recognisably and directly human.

They are inquisitive, alert to what people are both saying and doing, have the courage to act on less than complete knowledge, and behave as themselves rather than trying to be something they aren’t (he shrewdly noted that the ‘corporate twaddle’ that fake leaders talk is a reliable giveaway of inauthenticity).

The best imperfect leaders tell great stories too. ‘I don’t have a toolbox,’ he summed up, ‘because at Centrica toolboxes used to injure more people than anything else. In their place we have a tool roll, and in my leadership tool roll would be a badge, and on that badge it would say simply ‘how can I help you?’, to remind people to be inquisitive and listen with their ears and their eyes. There would be an egg timer or an hourglass to remind people to have the courage to be decisive, to make a good-enough decision soon not a perfect decision eventually. There’d be a mirror to remind them to be themselves and authentic, and there’d be a Nemo toy to remind us of the power of simple stories… By taking a more pithy human being rather than human doing approach we can all be great imperfect leaders.’

tools

The second speaker, Pernille Sahl Taylor, is chief communications officer at Handelsbanken UK, the branch of the Swedish group that is one of the fastest growing banks in Britain (not that this rate of growth matters to them, as we will see.  They are more pleased to have the highest customer satisfaction scores in the sector – nine years running according to EPSI who run an independent survey of such things)

Handelsbanken is distinguished as much by what it doesn’t do as what it does. It doesn’t do conventional marketing or budgeting, it grows without product or sales targets, and doesn’t pay individual bonuses. Says Taylor: ‘We have one simple corporate goal, which is to have a slightly higher return on equity than the average of our peers, and we achieve that by having lower costs and more satisfied customers. That is how we have run the bank since the early 1970s, and we have reached our corporate goal for 46 years in a row.’ Part of the excess is shared equally among all employees.

Handelsbanken’s secret is hidden in plain sight. It employs people who like to do banking and trusts them to do what it takes to make customers happy.

It opens new branches as and when it needs to in order to satisfy customer demand, and when it has enough good employees who are able to do it.

Handelsbanken’s equivalent of the ‘tool roll’ is a church spire, the view from which defines the area a branch can serve. The bank is the branch and the branch is the bank, with full decentralised responsibility for choosing customers, products and the rates it offers. Headquarters offers support and, crucially, guardianship of a guiding philosophy founded on a positive view of human nature: when Jan Wallander, the architect of the modern bank, wrote a book about it, the title was ‘Working With Human Nature and Not Against It’.

church

It sounds simple, and it is – but it is a sad commentary on contemporary business that, like the idea of imperfect leadership, it is also extraordinary and exceptional in today’s world, inspiring puzzlement and cautious admiration among other organisations – but not whole-hearted imitation.

Handelsbanken is not alone in this, pointed out Simon Caulkin, journalist and business commentator (and also of course, author of this note!)  In many industries there is a company like the Swedish bank that thrives mightily by doing the direct opposite of its conventional rivals. Call them ‘positive deviants’: Toyota, Apple, W.L Gore, Semco, Berkshire Hathaway… the list goes on. Why is the lasting success of such exemplars – which is neither fluke nor conceptually hard to understand – so consistently ignored and marginalised by the mainstream?

The only answer is that the underlying assumptions are so profoundly different that holding both in your head at the same time is impossible. You can’t get from RBS to Handelsbanken, or from Ford to Toyota, by incremental means: the roads lead in different directions.

Yet it’s the exceptions that are right – organisational Galileos or Copernicuses – and the mainstream that are the successors to the flat earthers of the 17th century.

It’s no exaggeration to say that the things wrong with our organisations – oppressive hierarchy, lack of trust and engagement, petty regulation, burgeoning bureaucracy, mediocre performance (pretty much everything, in fact) – are the result of trying to cram the crooked timber of humanity into the reducted equations of shareholder capitalism.

Alexander noted that many in his organisation, Centrica, especially the middle managers, didn’t initially feel at all comfortable with his Local Heroes initiative ‘because it was something beyond its command and control, a fundamental challenge to the organisation, so they tried to smother it with governance and all the rest of it. It was really difficult, very energy sapping and while well-meaning, it almost proved terminal’. In the same way fear of losing control prevented it handing more autonomy to skilled engineers even though they imposed tighter budgets on themselves than the organisation did. ‘The organisation can’t handle that free spirit. It worries about the few bad apples, so the whole thing is structured to manage that exception rather than the rule.’

Here in a nutshell is the reason why bureaucracy always increases, bullshit jobs multiply, new technology is used for job control rather than liberation – and management, unlike other disciplines, never gets better, just more complicated. Hence Peter Drucker’s famous lament that ‘so much of management consists of making it difficult for people to work’.

Here also is business’s very own version of Catch-22: to build a high-trust, low-cost organisation like Handelsbanken is eminently sane; but since it is so unusual, and it appears to involve giving up control, it’s crazy and you can’t do it.

And most companies don’t. As Taylor stressed, such a structure ‘comes with great flexibility, but also great responsibilities’ – one of which is to employ only people who fit. ‘It’s not for everyone. But we aim to employ people for a long time, so we take great care to find people who share our values… It’s like a big orchestra. If someone is playing the wrong tune it’s easy to spot – but you have to deal with it’.

This is is danger of sounding easy, and perhaps once you’re in this logic, it is.  But for most companies it’s the hardest thing in the world. The danger, of course, is that considerations of what is ‘sane’ and ‘crazy’ become normative and thus self-fulfilling. Unlike in the physical sciences, in human affairs beliefs can create their own reality. Sufficiently widely shared and used to shape how we think and act in their societies and organisations, such definitions and theories can harden into self-fulfilling prophecies, trapping organisations and leaders in sterile or harmful cycles of behaviour that are almost impossible to change. You can see it happening in our frozen organisations now.

The antidote: memorise the contents of the tool roll, and the church spire. Repeat to yourself at least five times a day: everything we have learned to think about management is wrong. Take heart from the great physicist Nils Bohr, who after a particularly contentious seminar observed: ‘We are all agreed that your theory is crazy. The question that divides us is whether it is crazy enough to have a chance of being correct.’

 

 

The Foundation’s view

Strong views then.  As the smoke cleared, what were we left concluding from the evening’s slaying of sacred cows?

  1. At the root of this issue are the shared beliefs we have come to hold about work and how it is done. Shared beliefs are powerful and invisible.  We are social animals and we are good at fitting in with a group, supressing what we might believe individually in favour of what seems to matter collectively. Changing shared beliefs is very difficult for one person and it usually happens over many years with many separate ‘moments of belief’ – belief-changing actions that show there is a better way.  Think apartheid, suffragettes and #Metoo.  On an everyday level what gets most firmly in the way is our fear of looking silly – of being laughed at and not accepted by the group.  It sounds small but it is huge.  So what David described was fascinating.  He has learned to do things in effective but unusual ways, human ways, in a large and conventional organisation.  The key seems to have been finding a label that legitimises unusual ways of behaving in the eyes of people holding the prevailing beliefs.  So he calls his approach imperfect leadership, recognising that it deviates from the accepted view of what’s right, and he then labels four simple-sounding ways of doing things that are each a way of being ‘human’ at work – for example making decisions with 80% of the information 100% on time as a prompt to make progress and make mistakes, and for that to be fine.

 

  1. Simon described things from the other end of the telescope, the very big picture. His realisation was that organisations work as complex systems, but conventional ‘good management’ works at a more simplistic level – direct inputs leading to successful outputs.  Simple inputs and outputs sound logical – they make sense to us individually.  Are waiting times too long in A&E?  Then set a target to reduce them and penalise people if they fail.  In a simple world that would work.  But in a system it’s more complicated than it looks – the reason the waiting times were long wasn’t that the people involved were lazy or stupid and in need of a push.  There are numerous things outside their control that contribute.  So given a simple target, penalties for missing it, and little control over, or even understanding of, what it would really take to achieve the outcome, all that’s left is manipulating the work and the measurement to hit the target.  For example keeping patients in ambulances until the A&E team is ready because the clock only starts when they move from ambulance to A&E.  Quick fixes litter our world – simple promises, attractive and logical, that are impossible to fulfil because they miss the bigger systemic picture.  Like Brexit and £350m to the NHS perhaps?  Quick fixes are an important enemy in this discussion

 

  1. Before you despair, there is a better way. Not natural because of our habits and instincts, as above.  But human AND effective, at a whole-organisation level.  Pernille described what this answer, not ‘the answer’ she was careful to emphasise, can look like.  Handelsbanken is more than 160 years old but since the early 1970s it has operated in a very unusual way.  Central to this is a stated belief that became shared.  It is a belief in people and that an organisation set up to work with human nature and not against it will work better.  This means trusting – assuming that people want to do the right thing and that if they have the skills, the information, the support and the tools they need, then they will do a good job.  In a bank this meant decentralisation – putting branches in control, within small geographical areas, of who their customers are, what they are charged, what lending is offered and on what terms…  And this means ALL customers.  If your area includes 500 individuals, 40 small businesses, plus Shell and Unilever’s HQs, then that branch handles the lot.  All of Shell’s banking, all of Unilever’s banking, and the small businesses and private individuals too.  So the branch has to staff up accordingly.  ‘But that’s mad’.  Yes, in conventional terms it is.  But it’s better. The fascinating thing about what Pernille described is that even at Handelsbanken, after nearly 50 years of success and 50 years of deepening shared beliefs about the way the bank operates, it is somehow still un-natural for things to just stay this way.  There is a gravity pulling us to the simplistic quick fix, and it takes conscious and determined resistance from the leadership of the bank to, in their words, keep pushing the cork back into the bottle of water.  ‘Moments of belief’, in our language, are what do it – specific actions that show that the unusual way is still the way that works and the way things are done around here, like asking a team member to stop keeping track of how many credit cards each branch has sold because human nature will lead to competition between branches.  And that will in turn lead to a shift, from only doing what matters to customers to doing what grows volume instead.

 

About The Foundation

We are a management consultancy specialising in growth. We help clients address big organic growth challenges; growing faster, growing into new markets or fending off threats to growth

What these challenges share is the need to influence customer behaviour, but this is inherently tough. Why? Because people in any organisation naturally see the world from the inside-out, with colleagues close and customers distant, and lots of assumptions about how things work that aren’t challenged

We help clients look from the outside-in, re-connecting them with what customers really value (the problem they want to solve, not usually what the client sells), then finding new and better ways to create this value

This means working both as expert advisors and facilitators. The issue with simply gathering outside-in information is that it lacks impact to get senior teams to tackle inconvenient truths in what customers want, and to believe their own organisation can be different

By using ‘Immersion’, personal conversations with customers and leaders of organisations in other sectors who have tackled parts of their challenge, we help teams get around the natural and limiting inside-out beliefs that stand in their way. This helps them develop better answers for customers and new ways of achieving lasting success

We answer three sizes of question:

  • Small – a new proposition or an improved customer experience
  • Medium-size – growing value per customer or improving retention (a sub-set of the former)
  • Large – creating customer-led business success, often by uncovering a true outward-looking purpose and the genuine belief needed for it to be acted on

Our clients include HSBC, JLR, O2, M&S and Ebay, with achievements including helping create Plan A at M&S, adding £100m of value to a Travelex travel money proposition, and giving Morrisons a competitive direction contributing to their return to growth

Behind our work our most distinctive characteristic is our team and their outlook. Each individual is motivated to and experienced in crossing the border between the worlds of customers and business which often resist mixing well

This link will take you to more information about us and our Forum events: http://www.the-foundation.com

 

Contact Details

Charlie Dawson (Founding Partner):

cdawson@the-foundation.com / +44 7785 268 859

Charlie Sim (Director)

csim@the-foundation.com / +44 7958 574 917

Anna Miley (Director)

amiley@the-foundation.com / +44 7816 261 987

John Sills (Director)

jsills@the-foundation.com / +44 7990 943 402

 


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