"Bye-bye Management! Why management is dispensable", keynote & workshop with Niels Pflaeging at HFU Furtwangen University (Schwenningen/D)

Bye-bye Management!
Why management is dispensable

8th Business Talks, HFU
Villingen-Schwenningen, 25.05.2011

Niels Pflaeging
[ BBTN Associate & Presidente MetaManagement Group
Niels Pflaeging ]
BetaCodex Diálogo CFO wwwbetacodex.org
Econique – Network
18/19 de Mayo 2009

Niels Pflaeging
BBTN Associate & Presidente MetaManagement Group
Econique – Diálogo CFO
18/19 de Mayo 2009

Industrial age ends: Knowledge economy advances:
high ”Supplies have the power“, ”Customers have the power“,
Evolution of mass markets: strong competition, individualized demand:
Taylorism as the superior model decentralized and adaptive model is superior!

Now, all these factors
are equally important!
Here, only efficiency Competitive
mattered, really! Characteristics success factors (CSF)
Dynamics 1.  Discontinuous change - Fast response
and 2.  Short life cycles - Innovation
complexity 3.  Constant pressure on prices Operational excellence
-
Characteristics
•  Incremental change 4.  Less loyal customers - Customer intimacy
5.  Choosy employees - Great place to work
•  Long life cycles
•  Stable prices 6.  Transparency, -  Effective
societal pressure governance
•  Loyal customers
  High financial -  Sustained superior
•  Choosy employers expectations value creation/fin.perf.
•  „Managed“ results
low

1890 1980 1990 2000 2010 2020
Most organizations still use a management model that was designed 2030

for efficiency, while the problem today is complexity.

“command and control“

•  Too centralized
•  Too inward-looking
•  Too little customer-oriented
•  Too bureaucratic
•  Too much focused on control
•  Too functionally divided
•  Too slow and time-
consuming
•  Too de-motivating
•  …

The BetaCodex: The 12 new laws of Leadership

§1 Freedom to act Connectedness not Dependency
§2 Responsibility Cells not Departments
§3 Governance Leadership not Management
§4 Performance climate Result culture not Duty fulfillment
§5 Success Fit not Maximization
§6 Transparency Intelligence flow not Power accumulation
§7 Orientation Relative Targets not Top-down prescription
§8 Recognition Sharing not Incentives
§9 Mental presence Preparedness not Planning
§10 Decision-making Consequence not Bureaucracy
§11 Resource usage Purpose-driven not Status-oriented
§12 Coordination Market dynamics not Commands

Sciences: Practice:
Thought leaders Stafford Beer Industry leaders
Margareth Wheatley
(selected) Niklas Luhmann (selected)
W. Edwards Deming
Kevin Kelly
Ross Ashby
Joseph Bragdon
…
Douglas McGregor
Chris Argyris Complexity
Jeffrey Pfeffer
Reinhard Sprenger theories Industry
Stephen Covey
Howard Gardner Social
Viktor Frankl
… sciences and
Retail
HR
Peter Drucker
Tom Peters Leadership & Services
Charles Handy change
John Kotter
Peter Senge
Thomas Davenport Strategy & Governments
Peter Block Performance & NGOs
… management
Henry Mintzberg
Gary Hamel
Jeremy Hope
Michael Hammer
Thomas Johnson
Charles Horngren
…

Industry

Retail

Services

Governments.
& NGOs

Periphery

Center

Information Decision

Command

Impulse Centralist command and
Reaction
control “collapses“ in
increasingly complex
environments

Source: Gerhard Wohland

The notion of
dividing an organization
into functions,
and then departments,
is fundamentally flawed.

But what is the alternative?

The blue pill: Fixed, negotiated targets The red pill: Relative, self-adjusting targets
Target: absolute ROCE in % (here: 15%) Target: relative ROCE in % (to market)
Plan Actual Target Actual

Comparison:
Comparison: Market-Actual
Most Target: „ROCE Most
Plan-Actual
important in % better important
Market competitor than market Market competitor
average” (25%) (28%)
Actual (25%) (28%) Actual
Plan (21%) (21%)
(15%) [independent
[expected from expected
market Ø: 13%] market Ø]

•  Interpretation within the plan-actual- •  Interpretation within actual-actual compa-
comparison: Plan was outperformed by 6 rison: Performance was 4 percentage points
percentage points > positive interpretation below competition! > negative interpretation
•  Better ROCE of the market average and the •  Absolute assumptions at the moment of
most important competitor remain unnoticed! planning don´t matter.
•  Targets always remain updated and relevant!
Source: Niels Pfläging

One cannot talk sensibly about leadership, or people management,
nor design decent management processes, unless we clarify
beforehand our beliefs with regards to what
people in organizations are like.
We have to arrive at a shared understanding of human nature
and of the consequences of that for our organizations.
Niels Pflaeging, Leading with Flexible Targets

Theory X
vs.
Theory Y Douglas McGregor

Theory X Theory Y
Attitude
People dislike work, People need to work and want to take
find it boring, an interest in it. Under right conditions,
and will avoid it if they can. they can enjoy it.
Direction
People must be forced People will direct themselves
or bribed towards a target
to make the right effort. that they accept.
Responsibility
People would rather be directed People will seek and accept
than accept responsibility, responsibility, under the right
(which they avoid). conditions.
Motivation
People are motivated mainly Under the right conditions, people
by money are motivated by the desire to realize
and fears about their job security. their own potential.
Creativity
Most people have little creativity - Creativity and ingenuity are
except when it comes to getting widely distributed
round rules. and grossly underused.

Source: Douglas McGregor, ‘The Human Side of Enterprise’, 1960

Org charts Performance Appraisals
Meritocracy Absenteeism manage
Time-based work contracts Extra hours
Motivation/incentives
Control of work hours
Individual targets
Stellenbeschreibungen
Target negotiation
Career plans/paths
Salary ranges
Competence profiling
Knowledge managemen
Suggestion Schemes Bonuses
Training budgets
30 Personnel Development
Assessment Center
Vortrag: Niels Pfläging
Personnel cost

The BetaCodex:
Thinking and working
on the model,
not
in the model.

Sustaining and
deepening of the
Integration decentralized model,
Evolution phase through generations
within the decentralized
model (culture of Transformation
empowerment and trust) through radical
decentralization of
decision-making
Differentiation Stagnation
phase within the tayloristic model

Low degree of decentralization/
Bureaucratization empowerment
through growing hierarchy
and functional differentiation
Pioneering
phase High degree of decentralization/
empowerment

Foundation Time scale: organization's age Several decades old

The case of a radically decentralized organization:
Handelsbanken – an extraordinary leadership philosophy

The most important objective
within Handelsbanken Group:
“Higher Return on Equity than the
average of comparable banks in
the Nordic region and Europe.”
Made real through:
•  Radical decentralization,
which in turn leads to…
•  Best customer service
•  Lowest cost
Alexander V Dokukin

  Consistently – over a period of 30 years – one of the most successful banks in
Europe, measured by almost all key performance indicators
(e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …)
ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share


How “radical decentralization“ is being reflected in the
company´s organizational structure and decision-making

Principles Customers

Customer intimacy
A large network of self-managed
teams with full responsibility for 600 branch managers
(Profit Centers)
customer results

Freedom and
capability to act 12 regional Fast, open
“Winning“ culture, combined with the managers information
freedom and ability to act (Invest Centers)
systems

Governance and
transparency CEO,
Framework for decision making with product firms,
clear values, limits and relative treasury, IT etc.
targets, plus transparency

Leads to maximum customer satisfaction!
Source: BBRT Making Performance Management Work
White paper – © BetaCodex Network – All rights reserved

Relative target definition through “league tables“ (rankings) –
instead of planned, fixed targets and internal negotiation

Bank to bank
Return on Equity (RoE) Region to region
Principles
1.  Bank D 31% Return on Assets(RoA)etc.
2.  Bank J 24%1.  Branch to branch
Region A 38% Cost/income ratio etc.
3.  Bank I 20%2.  Region C 27%
Relative targets and
relative compensation 4.  Bank B 18%3.  Region H 20%1.  Branch J 28%
5.  Bank E 15%4.  Region B 17%2.  Branch D 32%
Continuous preparation/ 6.  Bank F 13%5.  Region F 15%3.  Branch E 37%
social control 7.  Bank C 12%6.  Region E 12%4.  Branch A 39%
8.  Bank H 10%7.  Region J 10%5.  Branch I 41%
9.  Bank G 8% 8.  Region I 7% 6.  Branch F 45%
“On demand“ flow of 9.  Region G 6% 7.  Branch C 54%
resources/ 10.  Bank A (2%)
10.  Region D (5%)8.  Branch G 65%
dynamic coordination 9.  Branch H 72%
10.  Branch B 87%

Leads to lowest operational cost!

Flexible coordination and resources “on demand“ -
instead of allocations and budgets

Headquarters/
Region

Branches acquire resources
through internal markets

Resources Customer
Branch
(IT, HR etc.) demand

Branches Branches alone are Branches
decide over responsible for efficient observe
necessary use of resources customer
resource levels demand

Leads to eradicating and avoiding waste!
Source: BBRT Making Performance Management Work
White paper – © BetaCodex Network – All rights reserved

Let's start with compensation then.
First of all, let's be clear. Carrots don't work.
They might beat the intellect of donkeys. But they certainly
don't trick human beings, who all have “Theory Y”
wiring inside them. Incentives simply don't
have a positive influence on organizational
performance. Full stop.

So why do so many of us still apply
in the carrot-and-stick method with people?


Bonus Variable Bonus
Common practice: hurdle area limit “Ceiling”
„Pay for performance“
compensation Salary/ Reduction Maximization Reduction incentive:
profile with fixed bonus incentive: Lower incentive: Anticipate postpone results to
performance contract: result even more results next period
Creates maniuplation
incentive in any situation! Base salary
80% 100%: 120% Performance as %
of target target of target of target realization

Linear compensation curve without breaks:
A better model: Result variable compensation becomes
oriented compensation decoupled from targets
profile with relative
Salary/ Free from
performance
bonus incentive to manipulate
contracts:
No incentive to
manipulation.

Actual Actual Actual Performance in
result #1 result #2 result #3 relative evaluation
Source: Michael Jensen

1 very simple principle:
Always disconnect compensation from targets.
Always.

Pay-for-performance is an outgrowth of behaviorism, which is
focused on individual organisms, not systems - and, true to its name,
looks only at behaviors, not at reasons and motives and the people who
have them.
I tell Fortune 500 executives (or at least those foolish enough to ask me)
that the best formula for compensation is this: Pay people well, pay them
fairly, and then do everything possible to help them forget about money.
How should we reward our staff? Not at all! They are not our pets.
Pay them well, respect and trust them, free them from disturbance,
provide them with all available information and support to perform
on the highest possible level. Alfie Kohn, Sociologist

1.  Pay people well
2.  Pay people fairly
3.  And then do everything possible to take money off peoples minds!
All pay-for-performance plans violate that last precept!

Never use bonuses and incentives.
Apply profit sharing and/or shareholding concepts
for community.

Pay the person. Not the position.
Always.

Companies.
Don´t
Need.
Planning.
Eine Konsequenz aus dem Kodex.

Management processes in command and control
organizations are “straight jackets”

Strategy “Fixed” performance contract
•  Period [Fixed]
Strategic
learning cycle •  Targets [Fixed]
•  Compensation [Fixed]
Annual plan
Fixed •  Plan [Fixed]
Performance
•  Resources [Fixed]
Contract
Budget •  Coordination [Fixed]
•  Control [Fixed]
Management •  Agreed through [Negotiation]
control cycle •  Signed by: [Manager/Director]

Control

Tayloristic management works like this: As centralistic-burocratic hierarchies,
held together through a regime of fixed performance contracts!
Source: BBRT

“I will prepare
myself and
my time
must come.”
Abraham Lincoln

“I don´t know if it is possible.
What I know: It is necessary.“
Tom Peters

Today we already know for sure it is possible.
And we have also learned how it can be done.

Make it real!

www.betacodex.org

A selection of associates:

Niels Pfläging Silke Hermann Sonja D´Angelo
MetaManagement Group Insights Group Deutschland Sapiens Consulting
Sao Paulo- New York - Wiesbaden Wiesbaden – New York Switzerland
niels@metamanagementgroup.com silke.hermann@insights-group.de s.dangelo@sapiens.ch
Skype: npflaeging Skype: silkehermann Skype: Sonja D´Angelo
www.nielspflaeging.com www.insights-group.de www.sapiens.ch

"Bye-bye Management! Why management is dispensable", keynote & workshop with Niels Pflaeging at HFU Furtwangen University (Schwenningen/D)

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