2. Concentrate More on Leadership and Less on Management/Administration

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Background to Management

As Peter Drucker (2006)observed, management is a practice, not a science nor an art as it is what actually happens, ie real world. Furthermore,

"...There are plenty of examples of modern management pioneers and not a single one of them came out of business school..."

Gary Hamel as quoted by Catherine Fox, 2007l

As management is a practice, it can be taught.

Management 'science' supports the manager by providing tools to achieve results. On the other hand, management is the use, and implementation, of tools into practice. Furthermore, management is not a profession as professions need to have at least 4 key elements, ie

"...an acceptable body of knowledge; a system for certifying that individuals have mastered that knowledge before they are allowed to practise; a commitment to public good; and an enforceable code of ethics..."

Rakesh Khurana as quoted by Warren G Bennis et al, 2005

Management exists for the sake of an organisation; not the other way round. Management is the servant of the organisation and any management that forgets that is mismanagement.

Management is about balancing, ie results (short-term vs. long-term), innovation, different stakeholder (customer, shareholder, staff, etc) expectations

According to Peter Drucker (Robert Spillane, 2008), management has been seen as having 3 jobs with 5 essential functions:

- the 3 jobs include

i) entrepreneurial work - to make economic resources productive

ii) administrative work - to make staff productive

iii) political work - to make public resources productive

- 5 functions

i) setting objectives

ii) integrating tasks and people

iii) motivating and communicating

iii) measuring performance

iv) developing people via continuous learning

Furthermore Drucker realised that managers were creators (as they had to create the future), not controllers; intrapreneurs, not supervisors and that leadership was not about seducing people or appealing to their personality. He claimed that the one of the main tasks of management was to think through and define the purpose of the organisation.

He supported management by objectives which included self-control and understanding your community responsibilities.

Drucker suggested that there were 3 forces of mis-management

i) the specialized work of managers which encouraged them to pursue specialised training rather than general, humanistic education which is essential for community leadership

ii) the existence of hierarchy in which managers define themselves as supervisors rather than leaders

iii) confusion about the organisation's mission

Each task of a manager should be related to the overarching goals of the business so that there develops a cohesive management group with the appropriate moral framework.

Drucker stressed the need for participative management with creative tension (being prepared to arge and defend their case) plus staff taking responsibility and accountability for their setting goals and performance.

More recently management has enlarged to include to 5 different perspectives, ie

"...- managing self (the reflective mindset)

- managing organisations (the analytic mindset)

- managing context (the worldly mindset)

- managing relationships (the collaborative mindset)

- managing change (the action mindset)..."

Jonathan Gosling et al, 2003

Most managers need to learn to work more on the business and less in the business. Too often managers get into micro-management, thus missing the big picture challenges that a manager needs to stay focused on. In other words

"...training for executives focuses on learning about the business rather than learning about one's effectiveness in relationship with others on behalf of the business..."

Peter Senge et al, 2005

Furthermore,

"...if you become incredibly detailed, the organisation becomes dictatorial and inflexible and everyone is looking to see what the boss is thinking and I don't believe everyone should be doing that. No one has a patent on intelligence; collective efforts will win every time over dictatorial..."

Wal King as quoted by Catherine Fox, 2006

As Henry Mintzberg (2004) stated good management is a blend of craft (experience), art (insight) and science (analysis). Unfortunately, much of management education focuses on analysis which leads to calculating technocrats!!!!!!!!! Yet

"most issues facing business leaders are questions of judgment"

Warren G Bennis et al, 2005

In additional to strong technical skills to handle what needs to be done,

"managers also need skills to execute a plan, to communicate clearly to others what is expected, to provide constructive and honest feedback, to coach people and help them address weaknesses, and be flexible to handle the unexpected...

Patrick Coleman as quoted by Luke Slattery, 2007

In fact,

"...executives of today must learn to succeed in a complex shifting and increasingly uncertain business environment, to work at the edge of flux and disorder......who are thoughtful, aware, sensitive, flexible and adaptive managers capable of being moulded and developed into global executives......who have the ability to consistently and confidently get things done in an environment of uncertainty and ambiguity, think beyond their own interests in delivering results, and take the social contexts into account when making business decisions. This requires a range of leadership competencies, including communication; problem solving; thinking in creative, critical and analytical ways; personal effectiveness; self management; teamwork; people management; strategic thinking; ethical decision-making and innovation..."

Alec Cameron as quoted by Luke Slattery, 2007

This also involves good interpersonal skills, ie

"...an innate ability to quickly assess people and extract the best from them, a motivation to achieve, greater self-confidence and high energy levels to work at high consistently......skills in dealing with different cultures, skills in managing across borders......skills which are really business model innovation.....increasing demand for lifelong learning..."

Mike Riddiford as quoted by Luke Slattery, 2007

NB What appear to be straightforward financial decisions, such as cutting costs, are hard to measure as there are intangibles such as the human impact on these decisions!!!!

As Peter Drucker stated (Robert Spillane, 2008), the ultimate test of management is performance of work. Any distraction from this is dangerous.

A manager is most likely to fail at 1 of 3 key transitional points:

i) first managerial post

ii) first general management role

iii) first time as the most senior executive, such as CEO or MD.

The skills required at each transitional point are different. As there is a broadening and wider perception required at each level of management, activities, such as mentoring, coaching, etc can help make these transitions successful.

- the skills and methods that lead to individual success as a specialist (sales, technologist, clerk, etc) are completely different from those needed to lead a team at a management level. Most new managers incorrectly assume that the new title will give them significant authority and control. They believe that they can manage their staff individually but find the main challenge is getting the team to work together. Furthermore, they incorrectly assume that their main job is to keep the operations on track, rather than conceive of and drive improvements. Many young managers make the problem worse as they are fearful of asking their bosses for help; they feel that their bosses may perceive them as weak or incompetent.

- before becoming general managers, most managers run functional departments, such as sales, marketing, R & D, operations, finance, etc. The subsequent role of a general manager has additional responsibilities associated with developing business strategy, ensuring that all functional departments work together and delivering bottom-line profitability for all functional departments.

- once you become the senior executive, the role expands to include understanding what goes on in the organisation plus in the industry and elsewhere. This role requires being an ability to see the "big picture" and view things in the long-term (see the section on becoming an agile organisation, etc for more details on CEO's role).

As the senior executive

"...you have to manage a Board, you have to manage analysts, you have to manage the market, you have to manage regulators, you have to manage the legislature, you have to manage the media. Your whole notion of decision-making changes and rather than being responsible for all the decisions, you need to set up the processes by which those decisions are made and the people who take them..."

David Morgan as quoted by Andrew Cornell, 2008

Warren Buffett (William Thorndike, 2013) describes a concept named "institutional imperative", ie when CEOs mindlessly imitate the actions of their peers; if a CEO is doing something, other CEOs, especially in the same industry, feel they have to do the same. It is the equivalent to teenage peer pressure.

Furthermore,

"...the worker who has just been appointed to a managerial position attempts to retain earlier friendships as if nothing has changed; she does not understand that her new job requires that she listen, be listened to, and be respected, rather than that she win a contest of popularity or continue to exchange gossip or intimacies with former peers. The new board member fails to understand that she must now behave in a disinterested manner vis-a-vis the very CEO or president who courted for months and then invited her to join a select, prestigious group..."

Howard Gardner, 2006a

Any new manager is well advised to do

"...lots of listening, watching, studying and conferring......needs a starting point - the best understanding available of what has happened in the company and viable options..."

Howard Gardner, 2006a

It is important to do this before making decisions and to avoid badmouthing your predecessor and/or new colleagues

Activities such as mentoring, coaching, etc can help make these role transitions successful.

The main challenges in becoming a general manager are

- the change from being a specialist to a generalist, ie

"...instead of knowing more and more about less and less, the manager now shifts to knowing less and less about more and more..."

Hugo Uyterhoeven as quoted by Andrew Spicer, 2007

As a result of this most new general managers feel completely out of control.

- the nature of interaction with staff, ie

"...general managers typically deal in seemingly chaotic interactions, many of which last only a few minutes and include lots of topics..."

John Kotter as quoted by Andrew Spicer, 2007

- must learn enough about all functions of the business to be able to manage them. Gaps in skills needed to be addressed, ie the sales manager who struggles with financial numbers; the technical person who dislikes selling; the financial people who treat staff as balance sheet items

- the challenge of building and motivating a diverse team of people, such as research scientists in research and development; hard-nosed production superintendent's; detail-loving accountants, etc

- leadership becomes paramount, ie

"...Leaders must outline a direction they want to take the business, align people with that direction, and motivate them to achieve it. Leadership is much more about people than the science of management..."

Andrew Spicer, 2007

- need to develop an exit strategy,. This includes predicting possible downsides. Tthe most extreme case to think about is what would happen if the business fails and/or does not perform as well as expected.

Seven management habits needed for success

According to David Thomson (2007), there are 7 important management habits required for an organization to grow successfully

i) encourage your best customers to become extensions of the sales force (using your customers as advocates for your business will be more successful than your sales staff's spin. It is suggested this will cut the

"...sales cycle in half and the cost of sales and marketing by two-thirds..."

David Thomson has quoted by Mark Fenton-Jones, 2008

NB Of all the habits this is the most important one

ii) create and sustain a breakthrough proposition that is of value and benefit to the customer (this must deliver a superior value or benefit to the customers than provided by competitors. For example, Starbucks is not selling just a product or a commodity like a grocery store; it is selling a coffee experience which involves people socializing over coffee. This creates higher demand and allows them to charge higher prices than their competitors.)

NB To their disadvantage. most entrepreneurs are more product than customer focused.

iii) exploit a high-growth market segment, and not necessarily seek completely new markets. Some examples

- Starbucks redefined the market within retail

- Seek redefined a segment in advertising between recruiting and the newspaper industry

- Google redefined advertising research

iv) use "big brother" alliances to break into new markets (big organisations provide credibility, while small organisations help with innovation)

v) need to be cash flow positive and reinvest cash into the business

vi) an experienced management team that looks inside and outside (some people focus outwardly on markets, customers, alliances and community; other people focus intimately on operations. The management team members need to have complete trust and respect for each other. This derives partly from selecting the right people)

vii) board members need to be experienced in operating successful organisations

NB Passion is a 2 edge sword as it can dominate thinking and destroy an organisation by neglecting other important habits!!!!

managers need to learn to
- hold judgement
- don't have firm answer straight away
- listen
- empathise
- co-create
Other attributes include
- great executive coaches
- courage to try different roles
- resilience, ie bounce back from adversity
- luck in timing

Cognitive thinking, emotional intelligence and spiritual intelligence

Current managers need to focus on 4 elements

- financial assets (bricks and mortar, etc)

- intellectual capital (databases, business processes, etc)

- emotional capital (energy, enthusiasm, commitment, etc)

- spiritual intelligence (social responsibility, etc)

As a manager climbs the organisational hierarchy, emotional intelligence (EI or EQ) becomes more important than IQ (cognitive thinking). There are 4 elements to EQ: self-awareness, self-management, social awareness and relationship management

i) self-awareness involves emotional self-awareness, accurate self-assessment, complete self-reliance and self-belief, achieving self actualisation and self-confidence. It is the ability to read our own emotions. It allows us to know our strengths and limitations and feel confident about our self-worth. If used effectively, self-awareness helps us accurately gauge our own moods and how we are affecting others

ii) self-management involves self-control, trustworthiness, conscientiousness, adaptability, achievement orientation and initiative. It is the ability to control our emotions with honesty and integrity in reliable and adaptive ways. When this element is operating effectively, we know where our own emotions are coming from and how long a bad mood might last

iii) social awareness involves empathy, organisational awareness and service orientation. It comprises the key capabilities of empathy and organisational intuition, so that we demonstrate awareness of other people's emotions and understand how the organisation works. Socially-aware executives show that they care about other people's emotions; they are experts at reading the currents of office politics; they understand how their words and actions make others feel, and are sensitive enough to change them when the impact is negative

iv) relationship management or social skill involvesvisionary leadership, influence, developing others, communications, being a change catalyst, conflict management, building bonds, and teamwork and collaboration. It is the ability to communicate clearly and convincingly, disarm conflict and build strong personal relationships with others in the organisation. These skills are used to spread enthusiasm and settle disagreements, often with humour and kindness

It has been ascertained that, in management positions, emotional competencies are twice as important as technical skills and purely cognitive abilities combined. While an IQ score can help predict what profession or type of job an individual should hold, EQ is a more powerful predictor of who will succeed and who will not.

"...in general, the higher a position in an organisation, the more EI mattered; for individuals in leadership positions, 85 percent of their competencies were in the EI domain..."

Daniel Goleman as quoted by Tim Wallace, 2004

Furthermore,

"...about 15% of one's financial success is due to one's technical knowledge and about 85% is due to skills in human engineering - personality and the ability to lead people......The person who has the technical knowledge plus the ability to express ideas, to assume leadership, and to arouse enthusiasm amongst people - that person is headed for higher earning power..."

Dale Carnegie, 2003

"...research shows convincingly that EQ is more important than IQ in almost every role and many times more important in leadership roles. This finding is accentuated as we moved from the control philosophy of the industrial age to an empowering release philosophy of the knowledge worker age..."

Stephen Covey as quoted by Martyn Newman, 2007

"...a leader's intelligence has to have a strong emotional component..."

Jack Welch has quoted by Martyn Newman, 2007

It has been suggested that people with a high EQ exhibit the following characteristics:

"- more realistic in assessing their strengths and weaknesses

- take ownership of their own problems

- create stronger interpersonal relationships

- are better in motivating themselves and others

- are more proactive, innovative and creative

- function better under pressure

- cope better with change

- are superior leaders

- will have better results"

Manfred Kets de Vries, (2006)

On the other hand, until recently there has been scepticism about EQ, owing to the lack of empirical evidence to prove the link between EQ and performance. Recent evidence (Stephane Cote et al, 2006) points to EQ as an important predictor of task performance and shows that it can relate to cognitive intelligence in a compensatory way, ie individuals with low cognitive intelligence can perform acceptably if they have high emotional intelligence, such as passion and self-belief.

Furthermore, research (Fiona Smith, 2009) has shown conscientiousness is a better indicator than IQ of success at work. On the other hand, there is a dark side to conscientiousness, ie perfectionism, workaholism and compulsiveness plus being risk averse and poor at delegating. Really conscientious people are not good at collaboration as they prefer to do everything themselves.

The brain's pathways are important in emotional intelligence. Messages start at the base the brain and the limbic system where emotions are experienced; then travel to the front of the brain before you can think rationally about your experiences. Emotional intelligence requires effective communication between the rational and emotional centers of the brain so that we can form judgments and make choices.

Furthermore, there are 3 basic ideas involved

i) effective leadership is the byproduct of emotions, such as self-confidence, optimism, independence and enthusiasm

ii) emotions are valuable to forming the basis of strong relationships between different stakeholders so that you can create real competitive advantage

iii) emotions and associated behaviours can be used to solve problems, create products, deliver superior service, etc

Comparing IQ and EQ

IQ (cognitive)

EQ (emotional)

Analytical

Intuitive & impressionistic

Logically affective (what is sensible)

Pleasure/pain barrier (what feels good)

Use of abstract symbols, words, narrative & numbers

Use of metaphors & images

Slower processing of information

More rapid processing of information

More specific statements

Sweeping statements

(source: Manfred Kets de Vries, 2006)

Martyn Newman (2007) has claimed that EQ improves with age

Linked with EQ is intuition. It is claimed that Einstein stated that intuition is more important than IQ and he never discovered anything with his rational mind!!!!!!!! In fact,

"...He was famous for his "gedanken" (thought) experiments, experiments based on his remarkable imaginative capabilities. His basic insights leading to relativity theory, he said, had been discovered imagining himself "travelling on a light beam..."

Peter Senge et al, 2005

Sometimes intuition is called business feel and is linked with the term 'street smart'. Intuition is an important practice of management, ie

For "...Intel's CEO Andy Grove......the primary form of business feel that underpins his technical expertise in a number of areas......maverick investor George Soros......talks of the central role of anxiety in his management style; the Body Shop's Anita Roddick says she has the passion of an obsessive person; management"guru Ricardo Semler has written of the role of stress in transforming his understanding of organisations; Mort Meyerson, former CEO of Perot Systems Corp, analyses the role of uncertainty and despair in leading him to rethink leadership; and Lou Gerstner, in his time at IBM, came to recognise the role of emotions in leadership......business feel that cannot be learnt in a cognitive way. It relies on a feeling for the situation, only able to make instinctive or intuitive judgments in which we feel we are doing the correct thing without necessarily being able to justify our decision in abstract terms or according to the rules. If we try to follow the principles of business feel in a conscious and rational way, we lose the very thing that is its most vital element..."

Steven Segal, 2005

Furthermore,

"...Intuition is not some paranormal ability to see the future, but that technique of learning what to look for in a given environment, and of doing so without a conscious brain getting in the way......intuition - the ability to direct a behaviour according to some unconscious cues..."

Robert Winston, 2003

In addition to IQ (cognitive intelligence) and EQ (emotional intelligence), spiritual intelligence (SQ) is becoming important in management. SQ is described as being

"...about the depth and quality of moral and ethical choices, our sense of what is right, and applying it to our workplace. We use spiritual intelligence to work in awareness of our inner being, to apply workplace values, and build connections in the workplace so that people belong and can feel those values..."

Robyn Henderson, 2006

Spirituality can be defined as things

"...of significance that give meaning and direction to a person's life and helps them deal with adversity. It is broader than religion but may be inclusive of religion. It includes the quest for meaning, purpose, meaningful relationships and love and commitment. Spirituality is shaped and directed by the experience of individuals and of communities in which they live out their lives..."

Sharon Bicknell, 2009

Furthermore,

"...success is a function of persistence and doggedness and the willingness to work hard for 21 minutes to make sense of something that most people would give up on after 30 seconds..."

Alan Schoenfeld as quoted by Malcolm Gladwell, 2008

Need to be an opportunist, and have the strength and presence of mind to seize opportunities as they present themselves

Executive's role

According to Rob Goffee (2008), those who made into the top levels of management have the following characteristics:

- first child or first son (usually this person is made to feel special in the family)

- high achievers

- high energy levels

- think long-term

- goal focused

- politically active

- loners (even though they may preach teamwork)

- value independence

Furthermore,

- capacity to develop strategy

- able to work with a variety of people

- take early responsibility for important tasks

- strong achievement goals

- have early leadership experience in a variety of situations

- experience in several business functions

- integrity, trust and concern for people

The executive toolkit has the following elements

"...1. Leadership: establishing direction, aligning people with that direction and then motivating and inspiring them

2. Teamwork: can work in a team, assemble a team, recognize what's needed to make a team work well

3. Energy: high energy levels, to sustain pace at the top. Work-life balance is all very well, but probably unrealistic for most senior execs

4. Interpersonal skills: building and maintaining effective and productive relationships

5. Self-confidence: confidence is contagious in most organisations

6. Listening: being able to recognize and act on good advice

7. Business nous: an understanding of how money is made in a business and entrepreneurial flair

8. Innovation: the ability to change course, be flexible and take intelligent risks

9. Focus: the ability to review priorities and act on them

10. "As the mantra goes "transform yourself. Transform business. Transform the world..."

Luke Slattery, 2006

As Peter Drucker (2004) says, effective executives cannot be stereotyped, ie some are extroverts while others are introverts, some are easy going while others are control freaks, etc. On the other hand, there are 9 general principles that they follow:

i) they ask "What needs to be done?"

This involves selecting priorities and sticking to them. Ideally, this involves concentrating on the top priority task, and upon its completion, reviewing all priorities. For example, Jack Welch used to review his priority list every 5 years. Once he had selected the top task, he would delegate the other tasks

ii) they ask "What is right for the enterprise?"

This involves understanding all stakeholders' interests, etc

iii) they develop action plans

Executives are doers - they execute. Knowledge is useless until it is translated into deeds. To do this, they need to plan - which involves thinking about desired results, problem restraints, future revisions, check-in points and the ramifications. This involves the following questions

"...What contributions should the enterprise expect from me over the next 18 months to 2 years' What results will I commit to? With what deadlines? Is this course of action ethical? Is it acceptable within the organisation? Is it legal? Is it compatible with the mission, values and policies of the organisation? Affirmative answers don't guarantee that the action will be effective. But violating these restraints is certain to make it both wrong and ineffective..."

Peter Drucker, 2004

Remember: the action plan is flexible. It is a commitment that can be revised as required, ie as new opportunities arise. Furthermore, the action plan allows for checking results against expectations. Usually there are 2 checks, with the first check coming around halfway through, and a second at the end of the period

Aligned with an action plan is the executive's time management strategy

"...without an action plan, the executive becomes a prisoner of events. And without check-ins to re-examine the plan as events unfold, the executive has no way of knowing which events really matter and which are only noise..."

Peter Drucker, 2004

It is important that all the above bases are covered. Furthermore, decisions need to be reviewed regularly and systematically so that if a decision needs to be changed, it can be. These reviews can cover anything from results to the assumptions underlying the decision. For example, studies on hiring or promoting decisions have shown that only 1/3 is likely to be successful. Allocating the best people to the right positions is crucial.

If the wrong decision was made, it needs to be rectified. Furthermore, decision-making should be delegated to the most appropriate level of the organisation. This is most important in knowledge-based organisations.

v) they take responsibility for communicating

"...when they translate plans into action, executives need to pay particular attention to decision-making, communications, opportunities (as opposed to problems), and meetings...... a decision has not been made until people know:

- the name of the person accountable for carrying it out;

- the deadline;

- the names of people who will be affected by the decision and who therefore have to know about it, understand, and approve it - or at least not be strongly opposed to it;

- the names of the people who have to be informed of the decision, even if they are not directly affected by it..."

Peter Drucker, 2004

It is important that all the above bases are covered. Furthermore, decisions need to be reviewed regularly and systematically so that if a decision needs to be changed, it can be. These reviews can cover anything from results to the assumptions underlying the decision. For example, studies on hiring or promoting decisions have shown that only 1/3 is likely to be successful. Allocating the best people to the right positions is crucial.

v) they take responsibility for communicating

"...effective executives make sure that both their action plans and their information needs are understood..." by all stakeholders

Peter Drucker, 2004

Remember: organisation are held together by information rather than by ownership or command. Each executive needs to identify the information he/she needs, ask for it and keep requesting it until it arrives

vi) they focus on opportunities rather than problems

Remember:

"...problem solving......does not necessarily produce results. It prevents damage. Exploiting opportunities produces results..."

Peter Drucker, 2004

According to Drucker, there are 7 different types of opportunities that need to be scanned for:

a) an unexpected organisational success or failure caused by a competitor and/or within the industry

b) a gap between "what is" and "what could be" in a market process, product or service

c) innovation in a process/product/service inside or outside the organisation or its industry

d) changes in industry structure and market structure

e) demographic changes

f) changes in mindset, values, perception, mood or meaning

g) new knowledge or new technology

Need to ensure that problems do not overwhelm the opportunities. Ideally, allocate the best staff to opportunities rather than problems

vii) they run productive meetings

According to Drucker, there a several different meetings types, such as

- a meeting to prepare a statement, an announcement or a press release. Ideally a draft is prepared before the meeting

- a meeting in which one member reports. Ideally nothing else but the report is discussed

- a meeting in which several members report. Ideally, discussion is limited to issues for clarification, within a firm time limit. Furthermore, the reports and/or summaries are distributed to participants before the meeting

- a meeting to inform the convening executive. Executives should listen, ask questions and summarize

- a meeting whose only function is to allow the participants to be in the executive's presence. Usually these are a penalty of rank and should be confined to the least productive parts of the day, such as the end of the working day

To make meetings productive, self-discipline is required so that the format is adhered to and the meeting is terminated once the specific purpose has been accomplished

"...good executives don't raise another matter for discussion. They sum up and adjourn..."

Peter Drucker, 2004

Furthermore, good follow-up is important.

viii) they think and say "we" rather than "I"

"...this means that they think of the needs and the opportunities of the organisation before they think of their own needs and opportunities..."

Peter Drucker, 2004

ix) they listen first, speak last

NB The first 2 practices (asking what needs doing and what is right for the enterprise) give effective executives the knowledge they need; the next 4 (developing action plans, assuming decision responsibility, taking responsibility for communications and focusing on opportunities rather than problems) help them convert this knowledge into effective action. Practices 7 and 8 (conducting productive meetings and thinking/saying we rather than I) ensure that the whole organisation is held responsible and accountable. The last (listen first, speak last) is more a rule than a practice.

Good managers are people who believe

"...engaged employees lead to engaged customers, who in turn drive the company's growth, long-term profitability and stock price..."

Paul Michelman, 2004

There are 4 areas in which good managers excel in managing people

i) selection of staff

ii) expectation setting

iii) motivation

iv) development

These 4 are linked with 3 others

i) delegation

ii) role modelling

iii) succession planning

In selection, great managers select people for their talent rather than skills. Talent is defined as recurrent pattern of thought, feelings or behaviour that accounts for the different results produced by those with the same skills and training. Rather than selecting people whose skills match what is required, seek those whose talent will redefine how the job is done.

In expectation setting, great managers define the outcomes they seek and let each person utilize his/her individual talent to achieve them.

To effectively motivate people, good managers focus on developing the unique strengths, rather than correcting weaknesses, of each staff member. Thus they focus is on how to take advantage of what people already do well.

In development, great managers rate performance and develop the person. They realise that every person is different and should be treated as such.

Remember: success in one role is no guarantee for success in another as it could require different talent and skills

"...great managers seek the right fit for a person's talent, they work to see that he is rewarded for his performance, and they endeavour to ensure that is talent developed through progressively more challenging and meaningful assignments..."

Paul Michelman, 2005

The characteristics of the development of the manager is summarized, ie

"...Rookie managers typically exhibit

- small chunks of knowledge with weak links

- decisions and actions that are disconnected from facts and long-term considerations

After some experience, managers demonstrate

- large chunks of knowledge and well-organized, strong links

- the ability to recognize patterns and produce small sets of high-quality options

- the ability to make decisions linked to facts and the "big picture"

- good anticipation of system effects and unexpected outcomes

Fully developed leaders have

- analytical knowledge that underpins all judgments, decisions and actions

- good interpersonal behaviour and language to execute effectively..."

Rose-Anne Manns, 2006b

Effective managers discover what is unique about each staff member and capitalize on it. They know and value unique abilities (including idiosyncrasies) of the employees and they have learned how to best integrate them into the organisation and turn a particular talent into positive performance. This means they can identify and deploy the differences among people, challenging each staff member to excel. Each person's strengths and weaknesses need to be identified. Use the following question to identify a person's strengths, "Recently what was the most enjoyable thing you did at work and why did you enjoy it?" To find a person's weaknesses, invert the question: "Recently what was the least enjoyable thing you did at work and why was this so?" Managers need to build on the strengths and find other staff to compensate for somebody's weaknesses

Remember: it is self-assurance, not self-awareness, that is the strongest predictor of a person's ability to set and achieve high goals, to persist in the face of obstacles and to bounce back when reversals occur. In fact, self-awareness can be a negative. Furthermore, the most powerful trigger for performance is recognition, not money. Remember: pay for performance will not necessarily improve managerial or organisational performance. On the other hand, not having a suitable scheme for rewarding performance will not attract a right talent

It has been suggested that in the Western culture, high performers are motivated by achievement, affiliation and power. Of these social motivators, the primary one is achievement (meeting or exceeding a standard of excellence or improving personal performance); affiliation (maintaining close personal relationships) and power (being strong and influencing or having an impact on others). There are 2 forms of power motive, ie

"...personalised, where the leader draws strength from controlling others and making them feel weak; and socialised, where the leader's strength comes from empowering people......personalised is often associated with the exploitation of subordinates..."

David McClelland as quoted by Scott Speirer et al, 2006

There is a downside to achievement - it is the tendency to cheat and cut corners, and leave people out of the loop.

"...the most effective leaders were primarily motivated by socialized power: they channel their efforts into helping others be successful..."

David McClelland as quoted by Scott Speirer et al, 2006

Some examples of the different types of social motives

- people with high achievement drives tend to like challenging projects that allow them to accomplish something new. They are very competitive and like to outperform others who are successful. They tend to be utilitarian in their communications - often brief and to the point

- people with high affiliation are energized by personal relationships. They like group activities, especially with family and friends, as a basis to build friendships. They are heavy users of phone and Emails; just to stay connected

- people mainly motivated by personalised power need to feel strong and to be seen as important. They are very conscious of status and image as shown by status symbols (right car, right neighbourhood, right clothes, etc) and engage in prestigious activities (membership of the right club and having the right circle of friends)

- people mainly driven by socialised power enjoy making a positive impact. They get satisfaction from empowering people; they are energized by team activities. They like to advise and assist, whether or not the advice is wanted or needed.

In general, a CEO has to have the

"...ability to juggle"constantly dealing with myriad functions such as industrial relations, shareholder relations, government relations, competitors"He is variously required to be a commander, a negotiator, a lobbyist, a facilitator, a diplomat, a conciliator, an advocate, a counsellor and a statesman..."

Alan Jury, 2005

"...to have a pretty healthy disrespect for history. We respect performance, respect integrity but everyone was trained to have a "look forward" attitude instead of looking backwards..."

Geoff Immelt as quoted by Geoff Colvin, 2006c

As the senior executive

"...you have to manage a Board, you have to manage analysts, you have to manage the market, you have to manage regulators, you have to manage the legislature, you have to manage the media. Your whole notion of decision-making changes and rather than bring responsibility for all the decisions, you need to set up the processes by which those decisions are made and the people who take them..."

David Morgan as quoted by Andrew Cornell, 2008

Furthermore, if the CEO is in a global organization, there are additional complexities, ie

"...difficulties of regulation, culture, ethics, reporting, risk management"all completely different from where everyone has a common culture, a common way of doing things, a common stock market, a common regulatory environment, a common value set. As soon as you have different cultures, different contract forms, different legal structures, different taxation environment..."

Greg Clarke (Lend Lease) as quoted by Alan Jury, 2006

Ideally a CEO should focus on no more than 6 things that the organisation needs to get right and which will have a major impact, in both the short and long term.

Based on US statistics, Dan Ciampa (2005) states that around 40% of new CEOs fail in the first 18 months, while Andrew Cornell (2005) claims that in Australia, the average tenure of a CEO is 4.5 years. Mike Hanley, (2006c) observed that some reasons for this are

- many CEOs come from a strong operations background and thus lack the expertise in the financial area required for making complex decisions on major investments, acquisitions, entering new markets, etc.. As a result, they appoint investment advisers whose task is to get the deal done rather than look after the interests of the shareholders;

- too much delegation and consequent loss of focus on the important details;

- avoidance of difficult people decisions in selection and removal;

- development of a corporate formula that does not create a value proposition for the customer;

- great strategies that do not deliver, ie lack an effective implementation or execution approach;

- the wrong balance between short-term profit and long-term growth;

- not focusing on a few pivotal, key things that the organization needs to get right;

- not treating the past with respect;

- not facing reality with markets, staff, competitors, products/services, etc

- failing to learn from mistakes, ie wrong (timing and/or technically and/or strategically, etc)

Research conducted by Boris Groysberg et al (2006) found that bringing an outsider in as CEO works best if the CEO comes from the same industry and/or brings a management team with him/her from his/her previous organisation. Some general management skills, such as setting a vision, motivating staff, organising, budgeting and monitoring performance are easy to transfer from one organisation to another. On the other hand, other management skills that are specific to the organisation, such as knowledge of idiosyncratic processes and management systems are harder to transfer. It takes a while for a new manager to develop the new skills. These skills can be defined as

- strategic human capital (the strategic expertise in cost-cutting, growth, or handling cyclic markets)

- industry human capital (technical and regulatory knowledge unique to an industry)

- relationship human capital (the extent to which an individual manager's effectiveness can be attributed to his/her experience working with colleagues as part of team)

- organisational-specific human capital (tactical knowledge about unique routines and procedures, corporate culture and informal norms, and experience of the specific management systems and processes).

The organisational-specific human capital skills are not as transferable as the others

Some potential CEOs fail to recognize that the qualities they must demonstrate to make them good managers are different from those required to be a good CEO. In addition to excelling at running businesses, CEOs must master the art of forming coalitions and winning the support of people who are competitors. Sometimes this is called the shadow organisation, ie the political side of an organisation which is characterized by the unspoken relationships, alliances and influences exerted by coalitions. Generally, once a manager becomes a designated CEO, he/she receives little actionable feedback. They must sharpen their self-awareness, and sensitivity to the wants and needs of influential stakeholders. Furthermore, they must conduct themselves with a level of maturity and wisdom. The table below shows the difference between a good and an elite candidate based on management savvy, political intelligence and personal style.

Type of candidate

Good

Elite

Management savvy

Knows what is required operationally for short-term results

Motivates others to do it

Uses time well

Prioritises issues on importance

Frequently delegates tasks

Has a history of developing staff and exporting talents

Organizes and mobilizes talent toward most significant problems

Pushes people to achieve more than they think they can

Avoids jumping in personally

Makes the right judgments about what to expend energy on

Maintains control of the key decisions and a full pipeline of talented people

Makes people feel appreciated and thus loyal

Political intelligence

Accurately reads the political trends

Understands patterns of relationships quickly in an unfamiliar environment

Builds relationships with peers and staff

Makes sure the CEO and Board know what he or she is capable of doing

Isn't labeled "political"

Recognizes how relationships are likely to affect early success

Gets peers and staff to go out of their way to help

Doesn't seem self-serving

Personal style

Is a star performer

Is tense and driven to excel

Is hard-working, readily putting in more time and effort than peers

Enthusiastically backs initiatives that will help the business succeed

Is a leader among peers

Understands new ways of doing things and makes important connections

Makes success look effortless

Allows others' performance to be recognized

Manages energy to stay on the "rested edge" and to avoid the "ragged edge"

Knows when to hold back and when to let go

Enables peers to improve their performance

Stays grounded and makes sure basic needs are met while mastering new concepts

"...quality people care about others, are excited about change and understand the need to bring people with them..."
Steve Vamos as quoted by Joanna Gray, 2015d
Authenticity = people who really know who they are
Network capability, ie how they fit into the industry, how they fit into the external elements, the customer base and within their organisation. The quality of decision-making can be determined by the focus on the network, ie how they get things done through people. With the emphasis on social media, the 1-for-1 skills involved in coaching and developing people plus performance discussions are not as well developed

The role of the CEO is unique

"...No one in the organisation is so starved for unbiased information. While CEOs understand in principle that everyone who seeks their attention has an agenda, they don't always know a bias when they see one. No one else so needs to hear hard truths. Yet in the CEO's presence, people are guarded, unwilling to raise difficult topics. No one else is such a lightning rod for criticism of the business, with all the anger, and occasionally outright humiliation, that such a role entails. No one else is the final arbiter in so many vital business decisions, and consequently, so vulnerable to self-doubt......A CEO's most important decisions fall into two categories: big bets on people and big bets on strategy.The people decisions are more important, because they heavily influence strategy decisions. They also have an enormous impact on individual careers. CEOs understand the gravity of people issues, which are scrutinised by both insiders and outsiders. They also recognise how hard it is to get the full story, particularly about the top reports..."

David Nadler, 2005

"...The more senior you are, the more the organisation watches you; they watch your every move and take their cue from you. My culture and behaviour will have more impact on this team and organisation than anything..."

Steve Vamos (Managing Director, Microsoft Australia) as quoted by Janne Ryan, 2005

"...as a chief executive you are a role model, whether you like it or not. That means how you react, how you act, very much sets the standard of the organisation. So it's not a case of do as I say and not as I do. It is a case of having complete alignment between what you are saying and what you are doing. That's very important in creating trust and respect in the organisation..."

Ralph Norris as quoted by Andrew Cornell et al, 2006

Furthermore, new senior managers (especially CEOs) need to realise that they are in for a few surprises. Once promoted to the top position, they feel that they finally have the power to set strategy, the authority to make things happen and full access to the finer points of the business. Even though they have full responsibility for the organisation's well-being, they are a few steps removed from many of the factors that drive performance. Furthermore, as they have more formal power than anyone else in the organisation, they need to use it very carefully. As Michael Porter et al (2004) states, there are 7 surprises for new CEOs:

a) they don't run the organisation

Warning signs:

i) attending too many meetings and involved in too many tactical discussions

ii) too many days when you feel as though you have lost control of your time

b) giving orders is very costly

Warning signs:

i) you become the bottleneck

ii) staff prefer to consult you before they act

iii) staff start using your name to endorse things

c) it is hard to know what is "really going on"

Warning signs:

i) things you hear surprise you

ii) you learn about events after the fact

iii) you hear concerns and dissenting views through the grapevine, rather than directly

d) they are always sending messages

Warning signs

i) stories circulate about your behaviour that magnify or distort reality

ii) staff tend to act in ways that indicate that they trying to anticipate your likes and dislikes

e) they are not the boss

Warning signs

i) you don't know where you stand with Board members

ii) roles and responsibilities of Board members and management are not clear

iii) Board room discussions concentrate on management results and decisions

f) pleasing shareholders is not the main goal

Warning signs

i) executives and Board members judge their actions by impact on stock prices and/or political masters

ii) analysts or bureaucrats/politicians who don't understand the business push for decisions that risk the health of the organisation

iii) management incentives are disproportionately tied to stock prices and/or political criteria

g) they are only human

Warning signs

i) your interviews are about you rather than the organisation

ii) your lifestyle is more lavish or privileged than that of other top executives in the organisation

iii) you have few, if any, activities not connected to the organisation

This means the new CEOs must learn to manage organisational context rather than focus on daily operations. They must realise that the position does not confer the right to lead, nor does it guarantee the loyalty of staff in the organisation. Furthermore, they are subject to a host of limitations, ie legal, administrative, stakeholders, etc

Furthermore, these surprises compound the problems facing the CEO, ie

"...loneliness of life at the top, lack of personal and family life time, and the demands of keeping up with corporate governance requirements..."

Andrew Reitzer as quoted by Sue Mitchell, 2006

Another way to look at these surprises is that once a new manager is appointed, usually they need help to overcome their misconceptions or myths about your position in management. According to Linda Hill (2007), the myths v. reality are

Details

Myth

Reality

Defining characteristics of the new role

authority - have the freedom and autonomy to implement ideas; focus on the rights and privileges of being boss

interdependency - become enmeshed in a web of relationships (importance of networks

Source of power

formal authority - can get things done; autocratic approach (staff will follow orders); don't delegate

credibilty, trust, competence and influence - need to develop credibility and trust as staff were wary and you really have to earn their respect and trust (no blind loyalty to following orders); need to demonstrate competence as a manager (knowing how to do the right things; more listening than talking; don't micro manager) and influence (ability to deliver and executive the right thing through a strong web of interdependent relationships)

Desired outcome

control - must get compliance from staff (compliance does not mean commitment); too much reliance on formal authority whose effectiveness is questionable; staff do not take initiative nor delegate

commitment - empower staff so they take initiative with managers delegate effectively and direct reports take calculated risks

Managerial focus

managing one-on-one - role is to build relationships with individual staff and as a flow-on with the team; primarily focus is individual performance, identifying and solving problems

team building responsibilities - need to create a culture that will allow the team to fulfill its potential and harnessing the collective power of the group to improve individual performance and commitment; supervising each individual is not the same as laeding a team. This involves managing interdependencies and exercising informal authority derived from personal credibility requires new managers to build trust, influence, and mutual expectations with a wide group of people; establishing productive personal relationships

Key challenge

keeping the operations in working order - job is to make sure all that the operations runs smoothly; maintaining status quo thinking; see responsibilities very narrowly; blame flawed system and others for problems

making changes that will make the team perform better - responsible for initiating changes to enhance the group's performance; acting as a change agent by challenging status quo; work through both formal and informal structure

Usually managers find a new role is

- a stretch assignment - it is considerably more demanding than anticipated; expertise to handle their previous position is different that required for the new position, ie

"...as managers, they are responsible for setting and implementing an agenda for a whole group, something for which their careers and individual performance haven't prepared them..."

Linda Hill, 2007

- learning to lead in a process of learning by doing - it is a craft best acquired through on-the-job experiences, including adverse experiences when working beyond your current capabilities, and proceeding by trial and error, ie

"...Most star individual performers haven't made many mistakes, so this is you for them. Furthermore, few managers are aware, in the stressful, mistake-making moments, they are learning. The learning that says incrementally and gradually. As this process slowly the progresses - as the new manager unlearns a mindset and habits that served him of over a highly successful early career - a new professional identity emerges. He internalizes new ways of thinking and being and discovers new ways of measuring success and deriving satisfaction from work......this kind of psychological adjustment is taxing. As one new manager notes, I never knew a promotion could be so painful..."

Linda Hill, 2007

- need to create the conditions for success - this includes asking for help (remember no ones has all the answers)

Jim Collins (2005) believes that senior managers need to be able to say "I don't know."

"...great decisions begin with really great people and a simple statement: I don't know. Research evidence on this is very clear - that the leaders who ended up setting things in place that produced extraordinary results over time, and a series of great decisions over time, really were very comfortable saying "I don't know"......but I know we have to get it right..."

Jim Collins, 2005

The CEO's behaviour can have a significant impact on strategic directions and organisational morale; sometimes this can range from good to disastrous. Powerful CEOs are perceived as strong leaders; even physical appearance plays a part:

"...in the US population, about 14.5 % of all men are six feet or over. Among CEOs of Fortune, that number is 58 percent..."

Malcolm Gladwell as quoted by Catherine Fox, 2006h

At one extreme are the alpha males who are the dominant high achiever who

"...want to take charge; are charismatic, aggressive, competitive, bold, creative, persistent and tenacious. They also have a strong appetite for change, are far-sighted and spot problems..."

Catherine Fox, 2006h

Sometimes they can be a disaster

An interesting development has been the change in emphasis in the advice that senior management is seeking. The focus is more on management style and behaviour, and less on strategies and key business issues, ie

"...What's fascinating about the emergence of the 'CEO shadows' is that so many of our senior people still feel they need help with the people issues. It's a mark of just how crucial people are to the success of business in a knowledge economy..."

Helen Trinca, 2006a

On the other hand, a dysfunctional executive would show some of the following characteristics:

- abrasive behaviour

- poor role model, ie not setting a good personal example

- hoards information

- micromanages

- doesn't take responsibility for actions

- takes all the credit for successful activities

- not willing to engage in self-evaluation

- handles feedback poorly

- not planning for succession, etc

Some mistakes that senior managers make (Rose-Anne Manns, 2008b)

- letting their egos dominate

- becoming arrogant and self-opinionated

- not willing to listen and learn as the past achievements are history and not necessarily relevant now

- not willing to delegate, ie not willing to relinquish control over tasks that they were previously successful at

- not realizing the loneliness of being a senior manager and the need to find trusted people outside the organisation to bounce ideas off, such as an executive coach.

- moving to slowly, ie become paralysed by analysis

- not identifying some early wins to get momentum going and stakeholders on side

- not managing upwards effectively

- not communicating enough to all stakeholders, including staff, customers, etc

- over-promising and under-delivering

Leadership

Leadership is linked with independence, ie

"...to be independent of public opinion is the first formal condition of achieving anything great..."

Hegel as quoted by Martyn Newman, 2007

"...to make a decision to lead is to decide to stop being a product of your time and place and instead take responsibility for creating a distinct vision and accomplish something unique. This is what ultimately defines you as a leader..."

Martyn Newman, 2007

It is worth noting what great leaders do, ie great leaders discover what is universal and capitalize on it. Their job is to rally people towards a better future by cutting through differences of race, sex, nationality and personality, etc; using stories and celebrating heroes to tap into those very few needs we all share.

In evaluating leaders, we need to ask the following questions

- what do they stand for?

- what are their values?

- can we trust them?

- do they have charisma"

Peter Drucker, 2006

NB Charisma is defined as the ability to capture other people's attention and to communicate major assumptions and values in a vivid and clear manner so that people become followers. Be wary of too much charisma!!!!!!!!!

There is a link between leadership and organisational culture, ie

"...Leadership is intertwined with cultural formation, evolution, transformation, and destruction. Culture is created in the first instance by the action of leaders; culture is also embedded and strengthened by leaders. When culture becomes dysfunctional, leadership is needed to help the group unlearn some of its cultural assumptions and learn new assumptions. Such transformations sometimes require what amounts to conscious and deliberate destruction of cultural elements, which in turn requires the ability to surmount one's own taken-for-granted assumptions, to see what is needed to ensure the health and survival of the group, and to make things happen that enable the group to evolve toward new cultural assumptions..."

Edgar Schein, 2004

Based on this leaders need to have

- perception and insight (leaders must be able to perceive the realities; to have objective insights into themselves and the organisational culture, and its dysfunctional elements. This may include leaders admitting to not knowing the answer, to admit to not being in control, to embrace trial-and-error learning, and to become supportive of the learning efforts of others, etc)

- motivation (to intervene in one's own culture and to have extraordinary levels of motivation to go through the inevitable pain of learning and change, especially in a world with looser boundaries in which one's own loyalties become more and more difficult to define)

- emotional strength (to manage one's own and others' anxiety by creating psychological safety as learning and change become more and more a way of life; at times staff can become angry and obstructive, especially as the leader can challenge some of what the group has taken for granted; this requires taking some risk, especially when entering unknown territory)

- ability to change cultural assumptions or induce cognitive redefinition (this includes new skills in analysing, renewing and changing cultural assumptions)

- ability to create involvement and participation (this involves the willingness and ability to involve others and elicit their participation, ie ability to listen and encourage the group to look at itself and identify cultural dilemmas, etc

- resilience (ability to filter much highly complex information that is coming from varying sources - sometimes incomplete - so as to understand the important parts very quickly and to make sound decisions, especially in emergencies; not taking things personally; able to bounce back from adversity)

Remember: in changing an organisation, old habits and ways can be hard to change but need to be given up before new ones are learned; the leader plays the role of anxiety-and-risk absorber to help staff through the early stages of change; at times an established culture can serve as an important anxiety-reducing function (even if the organisation has become dysfunctional because of it); leaders need to be able to analyse the culture in sufficient detail to know which cultural assumptions can aid and which ones will hinder achieving the desired changes. Furthermore, the leader has to have the intervention skills (including communication and implementation skills); other skills include listening, absorbing and searching the environment for trends and building the organisation's capability to learn; the ability to acknowledge complexity, uncertainty and experimentation (including trial and error); develop a purpose (realising that a purpose only works once staff feel anxious and need a solution)

It has been suggested that the best leaders have an unusual characteristic called integrative thinking:

"...they have the predisposition and capacity to hold two opposing ideas at once......they're able to creatively resolve the tension between those two ideas by generating a new one that contains elements of the others, but is superior to both..."

Roger Martin, 2007

These integrative thinkers work through 4 related but distinct stages:

i) determine salience (actively seek the less obvious but potentially relevant factors that sometimes result in a messier situation)

ii) analyse causality (not afraid to question the validity of apparently obvious links or consider multi-directional and non-linear relationships)

iii) envision the decision architecture (when trying to invent a new business model, understand the relationships between the number of decision-making variables)

iv) achieving resolution (embrace holistic rather than segmented thinking that can creatively resolve tensions that are found in the decision-making process)

Followers

Followers have 4 basic needs, ie stability, compassion, trust and hope

- stability

"...I need to know the things around me are secure, they are real and they are going to last into the future and that is a critical part of what makes me feel secure in what I do..."

Barry Conchie et al as quoted by Fiona Smith, 2009e

- compassion

"...I need leaders to project the sense that they care about me, though they might not know me as a person. But, through their actions and through their words, they show some compassion for my existence and for what it is I want and need in life..."

Barry Conchie et al as quoted by Fiona Smith, 2009e

- trust

"...there has to be some honesty and openness in the face of the situation that confronts me. So, I don't trust the leader who speaks in Pollyanna language and who dresses up problems as easy to solve or pretends there are problems where there are none - because I can see through that..."

Barry Conchie et al as quoted by Fiona Smith, 2009e

- hope

"...the optimist tries to communicate to people that struggle is worthwhile, there is going to be benefit to be gained as a consequence of the hardship that we go through. That the future state we are going to create is better than the state that we are in, and that I am part of the solution rather than a passer-by watching what is going on..."

Barry Conchie et al as quoted by Fiona Smith, 2009e

It has been demonstrated that employees who strongly believe their leaders feel enthusiastic about the future, and engage considerably better in the workplace.

Middle management

According to Quey Nguyen (2001), middle management takes on 4 vital functions, ie

i) entrepreneur

ii) interpreter between management and staff/teams

iii) therapist to staff

iv) tightrope walker (maintaining the delicate balance between stability and change)

Merging, acquiring, partnering, diversification, alliancees, etc

When looking at merging, acquiring, partnering, diversification, etc with another organisation, you

"...usually makes careful checks of the financial strength, market position, management strengths and various other concrete aspects pertaining to the health of the other company. Rarely checked, however, are those aspects that might be considered cultural: a philosophy or style of the company, its technological origins, its structure, and its ways of operating - all of which may provide clues to the basic assumptions about its mission and its future. Yet if culture determines and limits strategy, a cultural mismatch in an acquisition or merger is as great a risk as a financial, product, or market mismatch..."

Edgar Schein, 2004

Furthermore,

"...mergers often fail because the excitement over the deal isn't matched by attention to people issues and planning for long-term. Hostile bids make it all the harder to take care of these factors......caught up in the deal fever, it seems all too easy to forget the nitty-gritty, and what will actually transpire once the deal-making caravan and the media move on and investment bankers pocket their fees and start working on the next money-spinner. Number crunchers often dismiss the integration of merging organisational cultures as the soft stuff. But it quickly becomes the hard stuff when it is so easily mishandled ..."

Katrina Nicholas, 2007a

"...Research by Hay Group shows that when mergers and acquisitions fail, it is often because leaders get bogged down by finance and technology issues and don't spend enough time integrating corporate cultures and technology styles..."

Fiona Smith, 2008q

An example of this is Fosters which struggled with its dominant beer culture to merge with the more complicated wine business of Southcorp and US wine house Beringer, ie

"...extremely hard to extract distribution synergies between beer, a product manufactured daily in cities, and wine, an agricultural commodity requiring high capital investment in but producing only one of crop a year......Fosters became overweight in premium wines in essentially what was a beer distribution system......brand loyalty in the one industry is different from what it is with beer. Wine drinkers' tastes change - they don't want to drink the same wine, which is a challenge for Foster's large, mature brands..."

Trevor O'Hoy as quoted by Joanne Gray, 2008

Furthermore, winemakers were price takers while breweries were priced makers.

However, the main justification for Foster's getting involved in the wine industry its need to diversify across products and geographies; gain savings in costs (such as distribution channels), etc, to counter the consolidation of the liquor retailing bargaining power in the hands of the supermarkets, eg Woolworths and Coles. These 2 major retailers control the sale of around half of the wine sold in Australia, and, as a result have the power to make demands in terms of pricing, volume and promotional support.

Also, when you are emerging, etc with another organisation, you are inheriting someone else's baggage, ie their culture. Richard Branson (2008) believes that you cannot reconstruct culture. Thus, it is better to start with a greenfield operations.

At each step of the merger and acquisition process, management can be vulnerable to a variety of cognitive biases (psychological phenomenon). The table below identifies these biases and suggests specific steps to address them.

Process step

Bias

De-biasing prescriptions

Preliminary due diligence

(over-estimate stand-alone enhancement, revenue and cost synergies; decide how much to bid; under-estimate the time, money and other resources needed for integration

Confirmation bias (seek information that validates initial hypothesis)

Seeking out disconfirming evidence; use synergy estimates to guide the price; examine potential pitfalls

 

Overconfidence (especially in identifying revenue & cost synergies)

Use reference forecasting plus comparable prior deals to estimate synergies; use a balanced assessment of entire competitive environment (both top-down & bottom-up)

 

Under-estimation of cultural factors (language, codes, symbols, anecdotes & rules) & conflict differences; use of blame game

Use tools such as network analysis maps

 

Planning fallacy (tend to under-estimate resources required)

Use reference-class forecasting to estimate the time and money needed for integration.

Estimate and update best practices

Need to learn from deal making experience

 

Conflict of interest

Seek objective, independent, external advice from experts

Bidding phase (submit bids until the seller agrees on a price)

Winner's curse, ie in a bidding war, the winner bids above its true value

Set a limit price & avoid bidding wars

Have a dedicated M & A function that looks at alternatives to the deal and sets price limits

Tie compensation of deal-maker to success of the deal

 

Competitive arousal, ie it is an adrenaline fuelled emotional state that is aimed at beating an opponent at all costs.

Need to focus on maximising value

Final phase (obtain greater access to the target's books so better able to determine final pay terms and closing details

Anchoring, ie a tendency to under-act to surprising news by holding onto initial numbers, etc

Seek the fresh eyes of independent, dispassionate analysts who review from the start of the bid

 

Sunken costs fallacy, ieswayed by amount of resources (time, money, credibility, etc) already invested in the bid

Seek the fresh eyes of independent, dispassionate analysts who review from the start of the bid

Have a backup plan and alternative options (including "walking away")

Have multi-options so that not stuck with one bid

(source: Dan Lovallo et al, 2007)

Potential dangers signals to be aware of during mergers and acquisitions include

- top management are the only ones who believe in the deal

- focus on synergies analysis of the revenue enhancement (without an investment plan) rather than cost savings

- inadequate cultural due diligence performed

- lack of independent outside advice

- too many restrictions on price changes during the bidding

- many others bidding for the same organisation

- too much emphasis on the time, money, or reputation already invested in the deal

- the deal must be done no matter what

Two other key biases include loss aversion and comparative ignorance

- loss aversion

"...refers to fearing losses more acutely than desiring equivalent gains......the psychological impact of a loss is about 2 to 1.5 times that of a gain......often, the net effect of loss aversion is inaction..."

Dan Lovallo et al, 2007

One of the best ways to overcome loss aversion is to aggregate a particular decision within the larger portfolio of strategic choices thereby mitigating the loss associated with a single poor outcome. For example, over time firms can undertake numerous investments; so long as one investment doesn't threaten, they should be considered a minor part of the continuing gamble

- comparative ignorance

"...given a pair of betting options, people prefer the gamble that is comparatively less certain..."

Dan Lovallo et al, 2007

Overcome ignorance by identifying actual returns your organisations has achieved on internal projects as against returns from acquisitions.

"...this baseline, objective measurement of the 2 types of returns can be formulated by using a reference class of at least eight similar deals......revealing ventures in this way will help reduce uncertainty about an acquisition's potential range of outcome, minimizing the ambiguity inherent in an unfamiliar gamble..."

Dan Lovallo et al, 2007

It has been found that in the short-term (1 to 2 years) most acquisitions fail but over a 10 year period those that do survive perform well. This could be explained by

- all benefits may not be apparent in the short-term

- good acquirers keep on making good acquisitions

However

"...Research shows that mergers and acquisitions have a high probability of destroying shareholders' value: three years after completion, 48 percent of merged organisations had a total shareholder return that was lower than the industry average......61 percent failed to earn cost of capital, or better, on funds invested.....managing human capital risk is both the most important factor for success of the deal, and the most difficult to manage.....people and cultural issues was cited as the underlying cause of disappointing results of M&A transactions......respondents were asked to name what area of human capital management they could have done better, communications, culture and leadership were the top three items on the wish list......the cultural thing is hard to get your arms around. Organisations really struggled to make it tangible. This is about getting the people and cultural issues right: the loss of the people; lower productivity before and after the deal; disruption to sales and customer service; industrial disputes; delays to the process of implementation. The organisations that get it right are the ones who do it (M&As) time and time again. But they have learned the hard lessons and make the time to review how the last deal went......30 percent of the people in a company that has been taken or merged say they do not intend to stay......damage done by a disengaged or disheartened person can be greater than the impact of their loss to another company..."

Fiona Smith 2008e

At the same time, every M&A is different

Even though research has shown that integrating processes from different firms is one of the main problems in forming successful mergers, partnerships, acquisitions, strategic alliances, joint ventures etc, management needs to be aware of cultural incompatibilities. More often than not these are not taken into account in the initial decision-making process. When one firm buys another, the buyer assumes that its culture will dominate. At the same time the buyer needs to respect the other firm's culture. There needs to be objectivity in decision-making around the composition of the new management team, and the culture and values that will emerge

There are 4 critical tasks that leaders need to address in these situations of potential cultural incompatibilities

...1. Leaders must understand their own culture well enough to be able to detect potential incompatibilities with the culture of the other organisation

2. Leaders must be able to decipher the other culture; to engage in kinds of activities that will reveal to them and to the other organisation what some of its assumptions are

3. Leaders must be able to articulate potential synergies or incompatibilities in such a way that others involved in the decision process can understand and deal with cultural realities

4. If the leader is not the CEO, he or she must be able to convince the CEO or the executive team to take cultural issues seriously..."

Edgar Schein, 2004

Furthermore

"...So many business acquisitions end up being disasters because the people involved fail to understand the real challenges involved in getting different types of people to work together and share the same goals. They look only at the numbers..."

Richard Branson, 2008

Despite increasing number of alliances, most fail (over 60 %). According to Jonathan Hughes et al (2007), successful alliances require focus on 5 principles:

i) placing less emphasis on defining the right business arrangement and more on developing the right working relationship (it is important to develop and maintain trust and communications so that the inevitable disagreements have a solid basis for solving; develop collaboration so that alliance members understand how each other operates including decision-making, resource allocation, information sharing, organisational structure, policies, procedures, cultural norms, etc; this needs to get beyond abstract terms, guiding principles and phrases - it needs to explore the potential challenges of working together, examine differences, develop shared protocols for clarifying and managing those differences and establish mechanisms of daily work operations.)

ii) placing less emphasis on creating end metrics and more on creating means metrics (generally as alliances take time, considerable investment and efforts occurs; need to initially use leading indicators that look at relational aspects of the alliance, such as amount of information sharing, development of ideas, speed of decision-making, etc rather than just the financial indicators, such as reduced costs, revenue generated, marketshare gains, etc)

iii) placing less emphasis on eliminating differences and more on embracing difference, ie leverage them to create value and stop driving difference underground where it becomes potential 'time bombs' (sometimes the differences touch on sensitive issues, such as competencies and culture - initially people can be reluctant to address these differences and preferred to focus on perceived commonality. Once you start to view the differences in a positive and productive fashion and demonstrate a willingness to acknowledge your own weaknesses and limitations, the relationships in the alliance improve.)

iv) placing less emphasis on establishing formal alliance management systems and structures and more on enabling collaborative behaviour (need to nurture and actively foster the collaborative behaviour; need to get away from the "blame culture" or "finger-pointing" or "CYA" when something goes wrong by having an emphasis on inquiry rather than judgment; an inquiry focuc acknowledges that in a complex and interdependent relationship difficulties usually result from actions of both sides - not just one)

v) placing less emphasis on managing the external relationship with partners and more on managing internal stakeholders (sometimes focus is on alliance partners and customers at the expense of your own staff; need to get "buy-in" and internal alignment to the alliance from all your staff; need to beware on the biggest barriers to trust, ie

"...mixed messages, broken commitments, and unpredictable, inconsistent behaviour..."

Jonathan Hughes et al, 2007

NB Working in alliances requires a different approach from that required in traditional business relationships

These 5 principles are in addition to the conventional advice to

"...create a solid business plan backed up by a detailed contract. Define metrics for assessing the value your alliance delivers. Seek common ground with partners and pay close attention to managing your interface with them. Establish formal systems and structures..."

Jonathan Hughes et al, 2007

Furthermore, in mergers and acquisitions, etc, there is a need to understand if the acquisition is going to sustain and improve performance of its current business model, ie help the organisations move up-market better and faster. Or is it going to disrupt the current business model and thus be treated as an autonomous business unit?

With mergers and acquisitions, etc, there is a need to develop an exit strategy, ie will it be a sale, or a float on a stock market?

Generally invest emergers, acquisitions, etc

"...synergies are overestimated, immigration costs are underestimated and time frames are unrealistic..."

Tommie Bergman as quoted by Narelle Hooper, 2008b

In mergers, acquisitions, etc need to overcome

"... usual barriers to successful mergers: employees shock, protests and anxiety, all of which can fuel supplier unrest, government disapproval and customer affections..."

Rosabeth Moss Kantor, 2010

Furthermore, it is important to understand the cultures of the different organisations involved. This requires understanding the informal networks and how decisions are made. The different organisational cultures can be further complicated if the firms are in different countries.

One approach for successful merger integration involves 3 sets of activities - "dual organisations, one organisation, new organisation"

- dual organisation (operates both organisations side-by-side - especially in complex situations, operating parallel operations can be a practical necessity. Furthermore, it helps people retain their identities, avoids too much change initially and staff can learn new ways with open minds)

- one organisation (find a common human bond and encourage developing relationships - need to encourage people to meet frequently, including social events. This can help forge an emotionally unified culture despite operations still being separate; motivate staff to connect and work across divides.)

- new organisation (quickly starts envisioning and building the future - create a new business model that is separate so that sends attention away from territoriality and conflict, and towards collaboration and facilitates future success.)

NB You need to focus beyond the short-term financial benefits of the deal and aim to integrate the talents. Also, staff need to see and hear the human side of the senior management!!!

Management/leadership and change

Martyn Newman (2007) states that decade-long research has identified people's top 10 personal needs:

- great recruitment

- great induction programs

- a great boss and leadership

- great training and development

- great future and security

- great career opportunities (in and around the organisation)

- involvement in change

- appropriate reward and recognition

- great quality of work and work environment

- good communication that allows people to have influence

Management needs to understand how it can satisfy the above needs to keep its staff

Implementation of new methods of management (such as E commerce, syndication, partnering and alliance, etc) is vital in handling the challenge of change, as traditional approaches are unable to handle the challenge. Change is already a significant factor in management, and is increasingly important to the future. Constructive leadership in response to change (rather than a "knee-jerk reaction") combined with a sense of leading organisations forward can ensure that leaders actually "make it happen". One way to handle this is patching - building inherently temporary structures that allow managers to continually re-stitch their businesses to match changing market opportunities. Patching occurs when a lot of small changes are made frequently to organisational structures such as splits, additions, combinations, transfers, combining chunks of businesses and exits. The process focuses on speed and agility, and requires adaptable organisational structures to handle turbulent times. The organisational structure is continually re-mapped against shifting market opportunities. Thus patching is creating a continually shifting mix of highly focused, tightly aligned businesses that can respond to changing market opportunities. This is very different from the approach of less frequent but more dramatic organisational restructuring that is more the norm. These major changes are then 'set in concrete', despite any future change in environment

Remember:

"...the organisation of the future will be virtually layerless and increasingly boundaryless, a series of information networks in which more connections and fewer people"manage processes. Information will become transparent. No leader will be able to hoard the facts that once made the corner office so powerful. Most of the information a manager will need to run a business will reside on a computer screen in a "digital cockpit". It will contain every piece of real-time data, with automatic alerts spotlighting the trends requiring immediate attention. While information will be available as never before, it will always be human judgment that will make the organisation go..."

Jack Welch as quoted by Jack Welch et al, 2001

Organisational thinking is moving away from an emphasis on linear, analytical, straight-line (cause and effect), quantifiable, reductionist, mechanistic, convergent (only one best way) thinking, to a more systematic and holistic approach with divergent (more than one answer) thinking that involves the likes of action learning, double loop-learning, self-organising systems, positive and negative feedback loops, process consultation, memes, multiple intelligence, creative orientation, creative tension, destructive creativity, dialogue, governance design, scenario planning, quantum physics, ecology, instability within stability, etc such as that explained by the Chaos Theory which is a sub-set of the Complexity Adaptive Theory.

The basis for Chaos Theory is that the universe is uncertain, unpredictable, irrational, illogical, non-linear, problematic and complex: order within disorder.

Chaos theory is about

"...Tiny shifts in initial conditions have a critical effect on the final outcome of a chaotic system, and this applies as much to human behaviour as it does to the physical world. It is impossible to model our behaviour because there are too many factors involved...... explanation of a great deal of human behaviour is an extraordinarily complex process. It is the product of many different factors - instinctive, physiological, rational and emotional - and prediction becomes impossible..."

Robert Winston, 2002

Furthermore,

"...This often renders previous experience and existing knowledge redundant and could be described as anti-intuitive, anti-historical and anti-experience. Complexity theory offers the ultimate experiential learning encounter..."

Paul Day, 2004

As Gil Sawford (1998) states:

"Chaotic systems display a repetitive pattern"..The evolution of these systems is sensitive to initial conditions and to continuous small disturbances. Owing to the difficulty of stipulating precise initial conditions, their behaviour is unpredictable and random. Chaotic systems are deterministic"When applied to non-linear feedback systems, Chaos can explain how variations in inputs and continuous small disturbances can quickly produce confounding variations in outcome. Accurate predictions are hard, if not impossible, to make as feedback loops magnify variations, taking the system to a state that we are unable to determine" ... The long-term future is not only unknown, it is unknowable, and the efficiency of long-term planning is delusive. The border between stability and instability is a compromise of both order and recurring disorder. This border is far from the equilibrium state of chaos where specific long-term outcomes are unknown. This can be represented graphically and shows the original shape of stability recurring over and over again. Humans are able to use this recurring patterns analogy by reflecting on experience and adapting to new situations. This allows us to create reasonably predictable short-term futures, and long-term futures that can be managed in an emergent way"

Furthermore,

"...any organisation.....capacity to be creative and sustainable in today's unstable and crisis-riven world will have the characteristics of what chaos and complexity theory call 'complex adaptive systems..."

Danah Zohar, 2004

Complex adaptive systems are those

"...in which individual elements, parts or agents interact, then process information and adapt their behavior to changing conditions. Immune systems, ecosystems, language, the law, and the Internet are all examples..."

Michael Shermer, 2008

This system has 9 distinctive characteristics, ie

i. self-organising (re-organising itself in harmony with the environment)

ii. bounded instability (systems exist only at the edge of chaos in a zone of instability that falls between order and chaos)

iii. emergent (the system is larger than the sum of the parts)

iv. holistic (systems have no internal boundaries, no recognisable separate part. Each part is linked with every other)

v. adaptive (systems not only learn as they go, they create themselves to explore their future, ie in a mutually self-creative dialogue with the environment to which they are internally sensitive)

vi. evolutionary mutations (mutations play a creative role)

vii. destroyed by outside control (imposing outside control will destroy the internal order and balance of the systems)

viii. recontextualising (continually reframing and relearning based on experiences with the environment)

ix. order out of chaos (systems continually create order out of chaos, ie negative entropy)

There is increasing discussion on the value of on-line video/computer games. Some are claiming that they are teaching the skills required for the way organizations are heading, ie

"...self-organisation and self-regulation "rapid-fire decisions based on multiple and constantly shifting inputs..."

Emma Connors, 2006a

The traditional hierarchical concept of management (control and command, and top-down directive style) is changing in favour of a more fluid, flexible, co-operative, collaborative and adaptive structure, such as the virtual organisation. The autocratic, aloof, status-conscious, competitive, convergent-thinking, left brain-dominated style of executive will increasingly be less of a force in senior management. Attributes of leadership will be less associated with "personal charisma" and more to being in tune with staff needs and development and to embodying divergent thinking. In other words,

"...The new reality is that in this changing environment a top-down, hierarchical, compartmentalised, control-oriented management culture simply will not work. It is too slow, too rigid, too far removed from the customer, too insensitive to feedback, and the layers of bureaucracy required by the hierarchy are too costly. The management system needed in this new era sees that the various elements of the system are interdependent and must function as an integrated whole. The entire system needs to be highly responsive to the customer and marketplace feedback, with the organisation being very flexible.

Here, knowledge and the ability to solve problems no longer flows down from the top of the organisation, far removed from the customer. The best source of knowledge comes from where the work gets done, not from the top. Knowledge and wisdom are not resident in the upper offices, and power is not derived from position or control.

The role of employees has shifted from one where individual differences need to be suppressed to one where individual differences - knowledge and skill - are the firm's most essential competitive advantage.

So, today's executives are responsible for guiding the work of much more amorphous, flexible, distributed networks of core competencies that must be bought together with speed and fluidity to meet the needs of rapidly changing markets, often using technologies with life cycles shorter than the products or services offered..."

Harold Resnick, 2006

Furthermore,need to be careful of the popularity of exalted leadership. Based on the exalted leadership model

"...the three greatest leaders of the 20th century were Hitler, Stalin and Mao. If that's leadership, I want no part of it..."

Peter Drucker as quoted by Geoffrey Colvin, 2005b

Leadership (including decision-making) is very contextual and situational. One style of leadership is not suitable for all situations. For example, an entrepreneurial leadership style is most appropriate for an escalating research and development organisation, whereas a motivational style is more suited to a product launch environment. On the other hand, good leaders have the following characteristics

- self-awareness (know their strengths and weaknesses plus those of people around them)

- do the right thing (are not interested in popularity)

- are good role models

- have an understanding and appreciation of the current environment that working in

As Snowden et al, 2007 observe, effective leaders learn to modify their decision-making styles to match changing environments. Using the 4 different situational contexts (described as simple, complicated, complex and chaotic) calls for different managerial responses (there is a description of the 5th context at the bottom of the table). Managers need to correctly identify the governing context, be aware of danger signals, and be able to avoid inappropriate reactions, ie

 

Characteristics

Leader's job

Danger signals

Responses to danger signals

Simple

(the domain of best-practice)egareas little subjected to change, such as process "oriented situation"

Repeating patterns and consistent events

Clear cause-and-effect relationships evident to everyone; right answer exists

Known knowns

Fact-based management

Sense, categorize and respond

Ensure that proper processes are in place

Delegate

Use best practices

Communicate in clear, direct ways

Understand extensive interactive communications may not be necessary

Complacency and comfort

Designed to make complex problems simple

Entrained thinking*ii

No challenge of accepted wisdom

Over-reliance on best practice if context shifts

Create communication channels to challenge orthodoxy

Stay connected without micromanaging

Did not assume things are simple

Recognize both the value and the limitations of best (past) practice

Complicated (the domain of experts)

Expert diagnosis required

Cause and effect relationship discoverable but not immediately apparent to everyone; multiple right answer possible

Known unknowns

Fact-based management

Sense, analyse and respond

Create panels of experts

Listen to conflicting advice

Use good practice

Experts locked into entrained thinking*ii that can cause analysis paralysis

Expert panels

Viewpoint of non-experts excluded

Encourage external and internal stakeholders to challenge expert opinions to combat entrained thinking

Use experiments and games to force people to think differently

Complex (the domain of emergence)

Most firms in this context

Constant flux and unpredictable

No right answers; emergent instructive patterns

Understand why things happen in retrospect

Unknown knowns

Many competing ideas

A need for creative and innovative approaches

Adaptive leadership

Probe, sense and respond

Create environments and experiments that allow patterns to emerge, ie experimental understanding

Increased levels of interaction and communication

Use methods that can help generate ideas: open discussion (as to large group methods); set barriers; encourage dissent and diversity; manage starting conditions and monitor for emergence

Temptation to fall back into habitual, command-and-control mode

Temptation to look for facts rather than allowing patterns to emerge

Desire for accelerated resolution of problems or exploitation of opportunities

Be patient and allow time for reflection

Use approaches that encourage interaction so patterns can emerge

Chaotic (the domain of rapid response), such as 9/11

High turbulence

No clear cause-and-effect relationships, no one right answer

Unknowables

Many decisions to make and no time to think

High tension

Adaptive leadership

Act, sense and respond

Look for what works instead of seeking right answers

Take immediate action to re-establish order (command and control; crisis management)

Provide clear, direct communications.

People more open to new ways of doing things, ie innovation

Applying a command and control approach longer than needed

"Cult of the leader", ie legends in their own minds

Missed opportunity for innovation

Chaos unabated

Setup mechanisms, such as parallel teams, to take advantage of opportunities afforded by chaotic environment

Encourage advisers to challenge point of view once the crisis has abated

Work to shift the context from chaotic to complex

Notes

i) Each context requires different actions. Simple and complicated contexts exist in an orderly universe, where cause-and-effect relationships are perceptible and right answers can be determined based on the facts. Complex and chaotic contexts are unordered - there is no immediate apparent relationship between cause and effect, and the way forward is determined based on emerging patterns. The ordered world revolves around fact-based management; the unordered world requires adaptive leadership.

ii) Entrained thinking refers to being overconfident in solutions or in the efficacy of solutions based on past experience, training and success

NB There is a 5th context (disorder) that applies when it is unclear which of the other 4 contexts are predominant. There are multiple perspectives jostling for dominance; factional leaders are in dispute; discord reigns. This requires breaking the situation into its constituent parts and assign each to one of the other 4 contexts; then make decisions on the intervention in contextually appropriate ways

The role of senior executives and leadership is to take responsibility for creating a supportive environment for staff activities such as new product development and meeting future challenges, being creative and innovative, etc. In effecting the change, senior management needs to mobilize people throughout the organisation to do adaptive work. This is required when:

- our deeply-held beliefs are challenged

- the values that made an organisation successful become less relevant

- legitimate competing perspectives emerge.

Creating the supportive environment is of the utmost importance, as the dominant resource/asset is now knowledge, ie intellectual property. As knowledge is not a physical asset which organisations can own, the best organisations can do is to create an environment which makes the best people want to stay with the organisation. Generally the more open the physical environment, the more open the organisation (Sheridan Winn, 2007). On the other hand, people are territorial.

More managers are moving away from concentrating on how (how we do things, how we operate) to what (what opportunities to pursue, what partnerships to form, what technologies to back, what experiments to start, etc)

On the other hand, with the prediction of an economic 'slow down', there will be increased pressure for managers to revert to more command and control types of management with pressure to perform in the short term.

Inflexible budget considerations are now being perceived as part of the command and control culture, ie a process that dis-empowers the front line staff, discourages information sharing and can slow the response to market development. Consequently, some organisations are moving away from budgets. In some extreme cases, when budgets are used as part of performance criteria, this has led to the breakdown of corporate ethics. Budgeting can do damage

- because it relies upon necessarily obsolete data

- much time is wasted on protracted, self-interested wrangling about the data that will supposedly indicate the future

- it encourages a system or philosophy of "spend it or lose it"

- much time and effort is spent supervising the organisation's performance in relation to the budget

- rigid adherence to annually-fixed plans and budgets stifles innovation

Some organisations claim that the budget process absorbs up to 30 percent of management's time. Furthermore, conclusions can be rendered pointless by new market information after the budget is completed. Alternatives to budgets include using measures, some financial (such as cost-to-income ratios, return on capital, profits, cash flow, cost reductions, etc); some non-financial and operational (such as time-to-market, customer satisfaction, quality, etc) and benchmarking to compare performance both within the organisation and externally. Generally, this approach has resulted in business units becoming smaller, more numerous and more entrepreneurial, ie a more adaptive organisation.

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