Ability to Act to Achieve a High Return on Management
Dezember 2015 | Lukas Michel, Agility Insights
Organizations need a design with dynamic capabilities for people to perform at their best in a fast-paced environment.
It won't be a surprise to you that managers and employees are expected to make quick decisions, focus their actions on what matters most and demonstrate entrepreneurial behaviors - in everything they do.
However, research from Agility Insights has revealed something more startling: in the context of our information rich, dynamic environment, the requirements and expectations outlined above are virtually impossible to meet: people are distracted, they struggle with decisions and miss implementations. As such, managers and employees often have no other choice than act in a self-interested manner. Talent is not effectively used and companies perform far below their potential.
In working with many companies, in interviews, workshops and seminars around the world and in all sectors, we know the challenge outlined above is endemic of the volatile, uncertain, complex and ambiguous environment, in which we have become comfortably uncomfortable.
Experience shows that systematic information overload, analysis paralysis, endless meetings, bias towards rationality, risk adversity and blindly following rules dominate our ways of thinking at work. This comes at the expense of disciplined decision-making, deliberate action and behaviors in line with company beliefs and boundaries. We know that this is the result of strong domestication.
People follow given rules. They want to do good.
The insights we have gained from the Agile Management Score reveal that a virus-infected culture, faulty leadership and erroneous managerial systems lead to flawed decisions, missing action and undesired behaviors – the negative domestication spiral accelerates because of this deteriorating operating environment. Domestication is what we define as the the behaviors and actions whereby leaders and employees follow the habits and patters determined by the company’s rules, norms and values.
On the flip side a vibrant culture, interactive leadership and supportive systems enable fast decisions, actions with impact and adequate behaviors. These are the outcomes of an operating environment with a deliberate design leading to positively domesticated behaviors: these companies deliver a high individual effectiveness and a high organizational ability to act. As such, the talent is effectively used and the company will deliver superior results.
How can businesses jump-start positive domestication?
The idea of positive socialization starts with every individual’s return on management. Harvard Professor Robert Simons developed the concept in 1995, based on the fact that time, attention and energy are scarce resources for any human being. Hence, in order to achieve a high return on management, it is wise to carefully invest time and focus the attention to generate a maximum amount of productive energy. We know that many leaders and employees struggle with this.
A high return on management requires an operating environment designed for a high ability to act.
It is a design for superior speed, agility and resilience. In our book MANAGEMENT DESIGN, we have outlined what it takes to develop an operating environment with dynamic capabilities in four questions:
How do we engage people for superior speed?
How do we coordinate work to create an agile organization?
How do we energize for performance -sustainably?
How do we make superior decisions for a high ability to act?
Exhibit 1: Dynamic Capabilities
|Return on management||Time||Attention||Energy|
|Ability to act||Speed||Agility||Resilience|
This article puts forward dynamic capabilities (Exhibit 1) – speed, agility and resilience - as the operating model for deliberate, positively domesticated behaviors for a volatile and fast moving market environment – in other words the dominant way people make decisions, act and behave in contrast to the control, engagement and change modes of operation currently in favor with many companies.
Dynamic capabilities are a relatively new concept that emerged in the past 5 years. Professor Johanna Anzengruber, Steinbeis University, Berlin, Germany, proposes competencies at the individual, team, corporate and network levels should be integrated, as a means to cope more effectively with a dynamic environment. Dynamic capabilities are a response to mechanistic control models that are unable to deal with change in a knowledge driven, fast paced environment. To highlight its benefits dynamic capabilities have been compared with the control, engagement and change modes of operation below (Exhibit 2).
Exhibit 2: Four Operations Modes
In our book THE PERFORMANCE TRIANGLE, we proposed four modes of operation leaders can choose from, depending on the specific managerial context in which companies operate. We have extensively argued why the dynamic capabilities mode helps companies address the changing corporate environment and use the benefits of technology-savvy generation Y talent.
Dynamic capabilities comprise self-responsible, decisive collective decisions with a focus on learning and development. In the control mode, decisions are deferred to senior leadership with power at the top of the hierarchy. The engagement mode favors collective debate and motivation where as in the change mode, management takes corrective action.
Dynamic capabilities require a dynamic toolbox that fits both, a dynamic environment and enabled people. Its design supports agile control with a stable core to flexibly address the changing challenges and opportunities as the arise. The Leadership Toolbox helps the employees and leaders use time effectively, focus its attention and mobilize the productive energy.
Exhibit 3: Four Operating Modes and the Leadership Toolbox
Exhibit 3 outlines the toolbox for the different operating modes: rules, change, engagement and dynamic capabilities. The dominant operating mode varies depending on the business context in which a company competes. We know, more often than not, that companies choose hybrid modes or indeed modes vary within a company. However, we know from our research with the Agile Management Score, 45% of companies still operate in a rules-based operating mode.
In a highly regulated, ‘safety-first’ context, the rules-based operating mode may still be effective.
Change modes of operation are the norm in transaction-oriented and heavy technology supported businesses such as insurance, banking and telecom.
Engagement modes work well in knowledge-driven environments such as educational institutions, research-based companies or professional-services businesses.
Companies also choose a mix of modes or vary their modes by department or function. For example, a global pharma company we work with uses the engagement mode for its research and development function while the manufacturing part applies the rules-based more. The selection and design of the toolbox for each mode of operations is a senior executive task that requires experience.
Four features of dynamic capabilities
Counter-intuitively, dynamic capabilities can be observed in a variety of settings that require both a high degree of flexibility and a rigorous set of operating procedures. For example, in the work of an airplane pilot, the emergency room of a hospital, in a military in combat situation or in an emergency fire fighting company. These are not examples of normal every-day business operations, but the extremes serve to make the point.
No visitor of any restaurant would ever go into the kitchen and ask for the specifics of a recipe before ordering a meal. It is expected that the chef knows what he or she is doing. The same is true of an airline pilot: the expectation – without any doubt and discussion - is that he or she follows very strict procedures and the guides of local traffic controller. Nobody would want a creative pilot that rethinks the way we fly planes. However, anyone that has experienced bad turbulence understands and is comforted by the fact that pilots know how to deal with exceptional situations – when highly trained skills are used by intuition and when normal rules don’t work. The speed of drilled action beats normal rules.
Considering the medical staff in an emergency room, we trust the exceptional skills of highly trained doctors and nurses that intuitively do what is right in the specific situation and context. They are trained to follow strict standards but when the situation requires, it is their skills rather than the routines that save lives. Agility and capabilities beat routines.
In a military combat situation or a fire-fighting situation, leaders can only provide broad guidance on how to go about handling a specific emergency. At the combat front or the fire fighting situation, it requires well- developed skills and intuition to do what is right. No command from above could ever be better in acting fast and flexibly to a specific situation. Soldiers and firefighters deal with the situation the best way their intuition and trained behaviors allow; they have absorbed rigorous procedures on how to deal with emergencies and simultaneously create resilient states.
Dynamic capabilities build on intuitive decision-making (the agile elements) and trained routine (the stable elements) rather than authority, blind action and decisions by paralysis. As such, they allow for fast responses, permit flexible action and enable robust solutions.
1 Engaging self-responsible people
The rules-based operations mode is what most of us know well. For the past 100 years, industrial style leaders have been trained to motivate and control people. Moreover, despite the wealth of research that proves that there is no meaningful relationship between bonuses and performance, extensive extrinsic and monetary rewards continue to dominate people management. Stretched goals tied to incentives are the dominant means of the change mode.
The fact is that both of these modes achieve exactly what they are designed to: fulfillment of detailed objectives – not one bit more. As the management thinker, Peter Drucker once said: “Management by objectives works – if you know the objectives. Ninety percent of the time you don’t”. The enabling mode of operations uses personal mastery and meaning to engage people. We know from the philosophers of the 17th century European Humanism that self-responsible people are motivated by definition.
The capabilities mode makes the same assumption that people are fundamentally motivated and, as such, the leadership task is to help employees find a purpose. This is called sense making not sense giving.
We know from working with many executives and high performance sports professionals around the world that engaged people need four things to perform at their peak:
(1) they need to be able to focus their attention on what matters most to them;
(2) they need a high awareness for what is;
(3) they trust their own skills and their environment;
(4) they require choice.
Choice is a prerequisite for self-responsible behaviors. If you cannot say no, then you have no choice, and hence cannot be self-responsible. Managers are well advised to give this some careful thought.
As an example, renowned leadership think tank we worked with decided to invest in “people engagement” activities as recommended by mainstream consultants. No doubt, their efforts resulted in a better place to work. But, the company lost on speed, agility and robustness. Meetings, town halls, more personal conversation all augmented the sense of purpose, but what truly matters to an organization is whether employees can fully apply their talent, focus on important things to get things done.
The Agile Management Score in the organization revealed the need to complement engagement activities with a toolbox for 21st century working practices. Less than two months after these practices were put in place at the organization, creativity increased, and collaboration became a natural way of working and relevant knowledge was shared and accumulated.
Self-responsible action and a deep sense of purpose enables people to use their time most effectively. As a result, these organizations get things done faster and still have things “under control” despite a more dynamic environment.
2 Coordinating self-organized work
In rules-based organizations the coordination of work happens through detailed processes. Every time naturally connected parts fall apart, these companies install further operating procedures. In a change mode environment, managers initiate change projects to reconnect parts that have become disconnected through recently added structures and accountabilities. Workshops, meetings, alignment and role clarifications are believed to be the means to coordinate work in the engagement mode.
The capabilities mode of operations supports companies with decentralized businesses. Self-organized team work and ad-hoc project teams are favored over strictly following plans and budgets.
Pharma firms we work with have long-established project teams that develop assets from research, development, distribution, marketing and sales as parts of their business. Functions allocate flexible and temporary projects with knowledge and experience along their cycle. People mutually adjust in a self-organized and purpose-driven manner to release their productive energy. Hence they help their organization to remain flexibly with a stable back-bone.
Self-organized work and mutual adjustment helps employees focus their attention of what matters most. A high degree of agility comes from the fact that shifting focus within a shared purpose makes organizations flexible.
3 Thriving performance through broad purpose
Rules-based performance management applies rigorous individual management by objectives with top-down goals and frequent performance appraisals. People in these organizations spend a lot of time getting agreement and reviews on the performance objectives.
Change mode operations favor action orientation. In other words, valuable management time is dedicated to aligning “value adding” projects and coordinating actions. These companies argue that implementation is what makes or breaks performance.
In engagement mode companies, knowledge driven employees follow their self-interest making it difficult for management to balance with corporate intent.
People in the capabilities mode favor a shared mind-set and clarity, based on broad direction with a strong, shared purpose. Employers help them to understand and use their energy to apply their full talent.
One of the city transportation companies we work with has recently transformed from being a Government agency to becoming an independent entrepreneurial unit. One of the legacies it brought along was the rigid management by objectives processes that dominated most leadership conversations. It was good practice to be very detailed and concrete when it came to target setting. The review of the organization’s management toolbox with the Agile Management Score made its case: the organizations rigorous and detailed routines made the entire company slow, inflexible and fragile – like every other bureaucratic public administration…
By focusing people on “serving their clients”, e.g. offering the city population the world’s best public transportation system, it unlocked the energy of its talent which led to an entrepreneurially driven organization.
Organizations with a dynamic capability mode of operations are able to release its productive energies based on broad sense of purpose, cooperation and high connectivity. These are the features of highly resilient businesses.
4 Making decisions based on collective wisdom
In rules-based organizations, decisions are made through the hierarchy. Delegated decisions always require the manager’s signature, which means the boss always makes the decisions. We know that most leaders understand that this type of hierarchy makes organizations slow, inflexible and fragile.
In change mode organizations, it’s always the leader that decides –assuming that he or she is the most qualified and most knowledgeable in the organization. As the author, Henry Mintzberg would put it: in these organizations, people are seen as re(movable) human resources, costly human assets and for sure human capital. They are not seen as human beings that add value to an organization. In contrast, the engagement mode favors debate, reasoning and committees. People are valued for what they add: knowledge and experience. It is just that many meetings don’t add to the agility of these companies.
Companies that operate in the capabilities mode, favor decision-making through collective wisdom. Decisions are delegated to the most knowledgeable and skilled individual. Rapid feedback ensures that individuals and organizations learn fast and continuously improve their decision-making and implementation of these decisions.
A hi-tech utilities provider that we work, successfully transformed from a CEO-driven decision-making style to a collective approach. The challenges of the energy sector, with increased substitution of high investments in traditional sources to investing into new, riskier energy sources, demands companies to continuously sense what is politically acceptable, judge what is possible and decide what is doable. As such, energy companies require ongoing sensing and debate, without ‘losing it’ to analysis by paralysis. With the help of the Agile Management Score, the CEO of this particular company was able to change his approach and began to mobilize the knowledge and insights from his executive team. This quickly transformed his team into a body that used its collective wisdom and made the entire company more agile, without it getting locked in decisions without choices.
Selecting the right mode of operations
Leaders want speed and control; agility and stability; and resilience without being able to change old patterns. Moreover, frequent changes in the environment demand high speed, agility and resilience from management.
Companies that move away from command and control structures towards the enabling mode will see a better use of their talent, but this is not enough.
To deal with an increasingly volatile, complex and ambiguous environment, companies need to develop dynamic capabilities to help them change without changing. Speed, agility and resilience enhance a company’s ability to act.
They establish an operating environment that enables a much better use of scarce talent for a higher return on management.
What can you do? Use the Agile Management Score quiz to determine your organization’s operations mode and the respective ability to act. Use our new book, Management Design, to design the operating environment that fits your specific context.
contact@AgilityInsights.com to discuss how we can help you develop fresh capabilities to compete in this new environment.
Lukas Michel is the founder and CEO of Agility Insights AG, a Swiss-based management services company with a global network of Diagnostic Mentors and management scientists.
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