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Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

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Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

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Slides from keynote presentation at GISMA, Hannover/Germany, on 6 February 2012. Oranized by Annegret Zurawski, GISMA

Slides from keynote presentation at GISMA, Hannover/Germany, on 6 February 2012. Oranized by Annegret Zurawski, GISMA

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Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

  1. 1. Bye-Bye Management! Why management is dispensable and how leadership for high performance really works Gisma, Hannover, 06.02.2012 Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009
  2. 2. Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009
  3. 3. 90% Peter Drucker
  4. 4. McKinsey Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009 4
  5. 5. 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 4.  Less loyal customers - Customer intimacy •  Incremental change •  Long life cycles 5.  Choosy employees - Great place to work 6.  Transparency, -  Effective •  Stable prices 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. 6
  6. 6. “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 •  … 9
  7. 7. 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
  8. 8. Theory X vs. Theory Y Douglas McGregor
  9. 9. 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:12 Douglas McGregor, ‘The Human Side of Enterprise’, 1960
  10. 10. Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009
  11. 11. 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:15 Douglas McGregor, ‘The Human Side of Enterprise’, 1960
  12. 12. Org charts Performance Appraisals Meritocracy Absenteeism managem Time-based work contracts Extra hours Motivation/incentives Control of work hours Individual targets Job descriptions Target negotiation Career plans/paths Salary ranges Competence profiling Knowledge management Suggestion Schemes Bonuses Training budgets 16 Personnel Development Assessment Center Vortrag: Niels Pfläging Personnel cost
  13. 13. 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 19
  14. 14. Sciences: Practice: Thought leaders Stafford Beer Industry leaders (selected) Margareth Wheatley Niklas Luhmann ? W. Edwards Deming Kevin Kelly Ross Ashby Joseph Bragdon … Douglas McGregor Chris Argyris Complexity Jeffrey Pfeffer Theories Reinhard Sprenger Industry Stephen Covey Howard Gardner Social Sciences Viktor Frankl & HR … Retail Peter Drucker Tom Peters Leadership & Services Charles Handy Change John Kotter Peter Senge Thomas Davenport Strategy & Performance Government Peter Block … Management & NGOs Henry Mintzberg Gary Hamel Jeremy Hope Michael Hammer Thomas Johnson Charles Horngren … 20
  15. 15. Practice: Industry leaders (selected) Industry Retail Services Governments & NGOs 21
  16. 16. ^
  17. 17. Periphery Center Decision Information Command Impulse Reaction Centralist command and control “collapses“ in increasingly complex environments Quelle: Gerhard Wohland 23
  18. 18. The BetaCodex: Thinking and working on the model, not in the model.
  19. 19. 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
  20. 20. White paper – Making Performance Management Work 26 © BetaCodex Network – All rights reserved
  21. 21. Companies. Don´t Need. Planning. Eine Konsequenz aus dem Kodex.
  22. 22. White paper – Making Performance Management Work 28 © BetaCodex Network – All rights reserved
  23. 23. Management processes in command and control organizations are “straight jackets” Strategy “Fixed” performance contract Strategic •  Period [Fixed] learning cycle •  Targets [Fixed] •  Compensation [Fixed] Annual plan Fixed •  Plan [Fixed] Performance Contract •  Resources [Fixed] 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 White paper – Making Performance Management Work 29 © BetaCodex Network – All rights reserved
  24. 24. White paper – Making Performance Management Work 31 © BetaCodex Network – All rights reserved
  25. 25. “I will prepare myself and my time must come.” Abraham Lincoln
  26. 26. The notion of dividing an organization into functions, and then departments, is fundamentally flawed. But what is the alternative?
  27. 27. White paper – Making Performance Management Work 35 © BetaCodex Network – All rights reserved
  28. 28. White paper – Making Performance Management Work 38 © BetaCodex Network – All rights reserved
  29. 29. White paper – Making Performance Management Work 39 © BetaCodex Network – All rights reserved
  30. 30. 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” Actual (25%) (28%) Actual (25%) (28%) 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
  31. 31. 42
  32. 32. 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 White paper – Making Performance Management Work 43 © BetaCodex Network – All rights reserved
  33. 33. 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 – 44 © BetaCodex Network – All rights reserved
  34. 34. 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% 6.  Bank F 13%5.  Region F 15%3.  Branch E 37% Continuous preparation/ 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 6% 7.  Branch C 54% resources/ 10.  Bank A (2%)9.  Region G 10.  Region D (5%)8.  Branch G 65% dynamic coordination 9.  Branch H 72% 10.  Branch B 87% Leads to lowest operational cost! White paper – Making Performance Management Work 45 © BetaCodex Network – All rights reserved
  35. 35. 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 – 46 © BetaCodex Network – All rights reserved
  36. 36. White paper – Making Performance Management Work 47 © BetaCodex Network – All rights reserved
  37. 37. 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 performance Salary/ Free from 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
  38. 38. 1 very simple principle: Always disconnect compensation from targets. Always. 49
  39. 39. 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!
  40. 40. 1 very simple principle: Never use bonuses and incentives. Apply profit sharing and/or shareholding concepts for community. 51
  41. 41. 1 very simple principle: Pay the person. Not the position. Always.
  42. 42. “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. 53
  43. 43. Whatwe are waiting
  44. 44. White paper – Making Performance Management Work 55 © BetaCodex Network – All rights reserved
  45. 45. 56
  46. 46. Make it real! www.betacodex.org A selection of associates: Silke Hermann Niels Pflaeging Lars Vollmer silke.hermann@ niels@betacodex.org vollmer@v-und-s.de insights-group.de nielspflaeging.com www.lars-vollmer.com Wiesbaden–New York São Paulo-New York-Wiesbaden Hannover/Stuttgart Walter Larralde Valérya Carvalho Chris Catto wlarralde@ valeria@betacodex.org christopher.catto@ on-strategy.com.mx Betaleadership.com putneybreeze.com.au Mexico City São Paulo Melbourne

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