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 - Innovationcomplexity 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 …
The blue pill: Fixed, negotiated targets The red pill: Relative, self-adjusting targetsTarget: 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 clarifybeforehand our beliefs with regards to whatpeople in organizations are like.We have to arrive at a shared understanding of human natureand of the consequences of that for our organizations. Niels Pflaeging, Leading with Flexible Targets
Theory X Theory Y AttitudePeople dislike work, People need to work and want to takefind it boring, an interest in it. Under right conditions,and will avoid it if they can. they can enjoy it. DirectionPeople must be forced People will direct themselvesor bribed towards a targetto make the right effort. that they accept. ResponsibilityPeople would rather be directed People will seek and acceptthan accept responsibility, responsibility, under the right(which they avoid). conditions. MotivationPeople are motivated mainly Under the right conditions, peopleby money are motivated by the desire to realizeand fears about their job security. their own potential. CreativityMost people have little creativity - Creativity and ingenuity areexcept when it comes to getting widely distributedround rules. and grossly underused. Source: Douglas McGregor, ‘The Human Side of Enterprise’, 1960
Niels PflaegingBBTN Associate & Presidente MetaManagement GroupEconique – Diálogo CFO18/19 de Mayo 2009
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 budgets30 Personnel Development Assessment Center Vortrag: Niels Pfläging Personnel cost
The BetaCodex: Thinking and workingon 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/ empowermentFoundation Time scale: organizations age Several decades old
Bonus Variable BonusCommon practice: hurdle area limit “Ceiling”„Pay for performance“compensation Salary/ Reduction Maximization Reduction incentive:profile with fixed bonus incentive: Lower incentive: Anticipate postpone results toperformance contract: result even more results next periodCreates maniuplationincentive 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 becomesoriented compensation decoupled from targetsprofile with relative Salary/ Free fromperformance bonus incentive to manipulatecontracts:No incentive tomanipulation. Actual Actual Actual Performance in result #1 result #2 result #3 relative evaluationSource: Michael Jensen
1 very simple principle:Always disconnect compensation from targets.Always.
Pay-for-performance is an outgrowth of behaviorism, which isfocused on individual organisms, not systems - and, true to its name,looks only at behaviors, not at reasons and motives and the people whohave 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 themfairly, 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 performon the highest possible level. Alfie Kohn, Sociologist1. Pay people well2. Pay people fairly3. And then do everything possible to take money off peoples minds!All pay-for-performance plans violate that last precept!
1 very simple principle:Never use bonuses and incentives.Apply profit sharing and/or shareholding conceptsfor community.
1 very simple principle:Pay the person. Not the position.Always.
Make it real!www.betacodex.orgA selection of associates:Niels Pfläging Silke Hermann Sonja D´AngeloMetaManagement Group Insights Group Deutschland Sapiens ConsultingSao Paulo- New York - Wiesbaden Wiesbaden – New York Switzerlandniels@metamanagementgroup.com firstname.lastname@example.org email@example.comSkype: npflaeging Skype: silkehermann Skype: Sonja D´Angelowww.nielspflaeging.com www.insights-group.de www.sapiens.ch