trends in management · management that characterizes unsophisticated companies and under-developed...

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PARP: Trends in Management

Trends in Management

Presented by:

Eric G. Flamholtz, Ph.D.

Professor, UCLA Anderson School of Management

President, Management Systems Consulting Corporation

Polish Agency for Enterprise Development

May 14th, 2015

Trends In Management

What does this suggest?

• Risk

• Change

• Uncertainty

• Transitions

Transitions

At Different Stages of Growth

Four Stages of Transitions

1) Planning

2) Getting started

3) Letting go!

4) Completion

Purpose

• Identify some key changes in the business environment.

• Discuss some global trends in management and

• Provide an overview of the framework of managing growing pains.

• To discuss the transitions required to create sustainably successful organizations.

Global Trends in Business and Management

Global Travel Since 2000

• Australia

• Austria

• Cambodia

• China

• Hong Kong

• Ecuador

• Egypt

• Kazakhstan

• Germany

• Great Britain

• Greece

• Italy

• India

• Morocco

• The Netherlands

• Peru

• Rwanda

• Russia

• Switzerland

• South Africa

• Tanzania

• Turkey

• Ukraine

• Vietnam

• Venezuela

• Zimbabwe

Global Trends in Business lead to trends in management

• There are three key “mega-trends” in business that are driving changes in management:

1) The aftermath of the global crisis that occurred in 2007-09:

1-1 Low interest rates for much longer than many people expect

1-2 An excess of resources (commodities, capital and labor).

2) Consolidation of industries.

3) The end of the super cycle of growth in China.

• The “bottom line” implication: Greater competition in business for survival and growth

Global Trends in Management

• The number one trend is an increasing analytical approach to management:

– Away from the what is termed “seat of pants” style of management that characterizes unsophisticated companies and under-developed nations.

– Driven by increasing global competition attributable to the internet.

– Even seen in sports:

• NFL Combine uses the Wonderlic Cognitive Intelligence test

• “MoneyBall” in baseball

• Statistical analysis in basketball

Global Trends in Management:More Powerful managerial Tools

• The development and use of managerial tools:

– Methodologies for Strategic Planning

– Methodologies for Performance Management

– Methodologies for Culture Management

Global Trends in Management:Big Data

Big Data

Big Data, IoT At Heart Of GE Predictive Analytics

Global Trends in Management: Business Assessment Data

• A related trend is the use of data from measurements of previously unmeasured aspects of business:

– Growing Pains

– Degree of Strategic development of business

– Culture’s impact upon financial performance

– The value of human capital and intellectual property

– “Big Data”

Global Trends in Management: New Roles

• A trend toward appointment of new roles such as:

– Chief Culture Officer (e.g.: Google)

– Chief Infrastructure Officer (Predicted)

There are two Strategic Choices for Businesses

• Try to become one of the top three to five largest organizations in and industry, or become an elite boutique.

• Learn to manage more scientifically by using measurements and data and not intuition, hunch or “by the seat of your pants.”

Managing Growing Pains

Building Sustainably Successful Organizations

OBJECTIVES:To provide an understanding of

• What are organizational growing pains?

• What causes growing pains?

• How to measure growing pains

• How to and assess their degree of severity (risk) and

• How to manage them to minimize risk to continued organizational success.

What are Growing Pains?

• Growing Pains are symptoms of organizational distress.

• They are a symptom that something has gone wrong in the process of developing an organization.

• They are a warning that future problems will be encountered, including (at an extreme) the possibility of organizational failure.

• They are a signal to make a transition in the way an organization is being managed.

Ten Classic Growing Pains

• People feel that there are not enough hours in the day.

• People are spending too much time “putting out fires.”

• Many people are not aware of what others are doing.

• People lack understanding of where the company is heading.

• There are too few good managers.

• Everybody feels “I have to do it myself if I want to get it done correctly.”

• Most people feel our meetings are a waste of time.

• When plans are made, there is very little follow-up and things just don’t get done.

• Some people feel insecure about their place in the company.

• The company has continued to grow in sales, but not in profits.

What Causes Growing Pains?

• Growing pains occur when something has gone wrong in the process of “organizational development”.

• Growing Pains occur when the “Organizational infrastructure” is not consistent with the size of an organization (measured in revenues).

• Conceptual Definition: “Infrastructure” refers to the organizational resources, systems required to support both the day to day and longer term operations and growth of an enterprise.

• To understand growing pains we must understand the process of “organizational development”.

Causes of Organizational Growing Pains

Organizational

Development

Organizational

Development

Growing Pains

Revenues

Infrastructure

Organizational Success and Failure

• Research on organizational success and failure

• The Ultimate Objective: to provide some frameworks and tools you can use to create sustainably successful organizations.

Performance Management

Research on Organizational Success and Failure

Financial Performance• Gross Margin (Gain)• EBT• ROI• Shareholder Value

Model for Strategic

Organizational Development

The “Pyramid of Organizational Development”

A Life Cycle Model

7 Key Stages of Organizational

Growth

Measures of Organizational

Health/Distress

•Growing Pains•Organizational Effectiveness

•Degree of Risk

Tools:• Strategic

Planning • Management

Development• Performance

Management• Culture

Management

Research:Three Fundamental Questions

• What is required to build a successful organization?

• Why are some organizations successful and others not successful over the long term?

• What can be done to increase the probability of building a sustainably successful organization over the long term?

Organizational DevelopmentSuccesses and Failures:

Paired Comparisons

Successes Failures / Difficulties

Starbucks Boston Market

PacifiCare MaxiCare

Southwest People Express

Nike L.A. Gear

Walmart K-Mart

Walmart vs. K-Mart, 1990’s

* Adjusted for splits

$50,00

$100,00

$150,00

$200,00

$250,00

$300,00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Walmart K-Mart

Walmart vs. K-Mart, 2000-2003

$50,00

$100,00

$150,00

$200,00

$250,00

2000 2001 2002**

** K-Mart filed for Chapter 11 bankruptcy during 2002.

Walmart K-Mart

Walmart vs. K-Mart

Key Building Blocks Walmart Kmart

Culture andCulture Management

Management Systems

Operational Systems + -

Resources + -

Products Same Same

Markets Same Same

Starbucks vs. Boston Market, 1990’s

$20,00

$40,00

$60,00

$80,00

$100,00

$120,00

1994 1995 1996 1997 1998 1999

Starbucks

BostonMarket

Starbucks vs. Boston Market, 2000-2003

** Boston Market’s last day of trading was May 27, 2000. The company filed for Chapter 11 bankruptcy in October of 1998.

$50,00

$100,00

$150,00

$200,00

$250,00

$300,00

2000** 2001 2002 2003

Starbucks

Boston Market

The Strategic “Lens” for Building Successful Organizations

Critical Tasks of Organizational Success

• Development of an appropriate Business Foundation.

• Identification and definition of a viable market to serve.

• Development of appropriate products and/or services.

• Acquisition and/or development of resources required to operate and grow the organization.

• Development of the operational systems necessary for the organization to function on a day-to-day basis.

• Development of the management systems required for the overall functioning of the organization on a long-term basis.

• Development and effective management of the organizational culture.

Pyramid of Organizational Development™

Personnel:

• Hiring• Compensation

Corporate Culture

Values Beliefs Norms

Management Systems

Planning OrganizationManagementDevelopment

Perf.Mgmt.

Operational Systems

Resources Management

Products & Services

Markets

Accounting:

• Billing• Payroll

Production:

•Shipping

Marketing:

• Selling

Financial Resources

Technological andPhysical Resources

Human Resources

Develop Products (Services)

Define Market Segments and Niche

Business Foundation Business Definition Strategic Mission Core Strategy

Six Key Drivers of Financial Results, “Building Blocks” of Organizational Success, and Sources of Potential

Competitive Advantages

Resources

Management Systems

Operational Systems

Corporate Culture

Products

Markets

FinancialPerformance

Organizational Infrastructure

• The top four variables comprise the “organizational infrastructure”

• The top two (management systems and Culture) comprise the “management infrastructure

• The middle two (resources and operational systems) comprise the “operational infrastructure.”

• Operational definition: Infrastructure consist of the top four variables comprising the key strategic building blocks of an organization, which we call the Pyramid of Organizational Development.

Cause of Growing Pains

• Growing Pains occur when the “Organizational infrastructure” is not consistent with the size of an organization (measured in revenues)

Causes of Organizational Growing Pains

Organizational

Development

Organizational

Development

Growing Pains

Revenues

Infrastructure

Implications of infrastructure

• This has important implications for competitive strength

• Infrastructure is the key to understanding growing pains.

• Growing pains occur when infrastructure is not sufficient to support the size and complexity of organizations

• Key implication: You win with infrastructure

Levels of Strategic Organizational Development and

Organizational Success

Type 1

Type 2

Type 3

Three Types (Degrees) of Organizational Development

The Management System

Planning System

Compensation

Organization

Operations

Performance Review Meetings

Performance Appraisal

ResultsPerformance Measurement

System

Management Development

System

CULTURE

MANAGEMENT SYSTEMS

OPERATIONAL SYSTEMS

RESOURCES

MARKETS

PRODUCTS/SERVICES

5 = High 1 = LowStrengths Opportunities to Improve

Quantitative Assessment of Strategic Organizational Development

Standard Pyramid Development Scores Required for Different Levels of Success (Operational

Excellence) Over the Long Run

Level SuccessRequired

Pyramid Score

I Global Leaders 4.50+

II Superior 4.00+

III Successful 3.50+

IV Marginally Successful 3.00+

V Unsuccessful < 3.00

Sample Companies of Level of Success

Level SuccessRequired

Pyramid Score

I SBUX, Apple, Exxon 4.50+

IINike, Ritz-Carlton, Amgen, Wells Fargo Bank, Toyota

IIIMövenpick, Li Ning, Techcombank, ThompsonReuters, Allianz

IV GM, Nokia, 3.00+

V K-Mart, Sears < 3.00

Measuring

Organizational Development

The Management Systems Organizational Effectiveness Survey©

Organizational Effectiveness Survey (OES)

• The Management Systems Organizational Effectiveness Survey© is a validated instrument.

• The survey consists of 65 items that measure the extent to which an organization has developed the systems and structures needed to support its growth and/or stage of development

• For an organization to have the highest probability of success over the long-term, it needs to effectively manage all six levels in the Pyramid of Organizational Development plus Financial Results, individually and as a system.

Survey Scoring

• Items on this survey are scored on a 5-point Likert scale, with the following meanings:

Score Meaning

1 To a Very Slight Extent

2 To a Slight Extent

3 To Some Extent

4 To a Great Extent

5 To a Very Great Extent

Mean (Average) Scores

Results and Analysis

OES Mean Score Interpretation

Score Range Color Interpretation

4.5-5.0 Green To a Very Great Extent

4.0-4.4 Yellow To a Great Extent

3.0-3.9 Orange To Some Extent

2.0-2.9 Red To a Slight Extent

1.0-1.9 Purple To a Very Slight Extent

Management Systems’ Database:Distribution of Overall Strategic

Organizational Development Scores

Mean Score Percent

4.5-5.0 Less than 1%

4.0-4.4 3%

3.5-3.9 26%

3.0-3.4 50%

< 3.0 20%

< 2.0 Less than 1%

The Pyramid and Financial Performance

Our research indicates a strong statistically significant relationship between the variables included in the Pyramid and financial performance:

• Gross Margin

• EBIT

• ROI

Empirical Research Summary

• The extent of development of the Pyramid (organizational development) has a direct impact on financial results.

• The development of the Pyramid has a direct impact on Growing pains:

– High Pyramid (OE) Scores result are associated with lower growing pains (GP) scores & vice versa.

• Growing pains have a direct inverse impact on financial results.

• A “leadership molecule” is associated with higher organizational development (Pyramid) scores.

Managing The Stages of Growth

• There are seven stages in the life cycle of organizations.

• Our research has indicated that the stages can be identified by revenue levels.

• At each stage there is a key developmental problem or task.

• At each stage all of the variables of the Pyramid must be managed individually and holistically.

• At each stage the key task accounts for approximately 70% of success.

• When organizational size (measured in revenues) exceeds the capacity of the infrastructure, growing pains occur.

Management EmphasisDepending on Stage of Growth

StageOverall Strategic

MissionManagement Should Focus On:

I Proof of Concept Markets and Products / Services

II Scale Up Resources and Operational Systems

IIITransition to Professional

ManagementManagement Systems

IV Complete the Transition Culture

V New Growth Opportunities Replication of Cycle

VITransition to Multidivisional

BusinessesIntegration of Multiple Businesses

Stages of Growth ($)

Stage DescriptionSIZE OF ORGANIZATION (REVENUES)

Critical Development Area

Manufacturing Distribution Service

I New VentureMarkets and Products/Services

Less than $1 million

Less than $500,000

Less than $300,000

II ExpansionResources and Operational Systems

$1 to $10 million

$500,000 to $5million

$300,000 to $3 million

III ProfessionalizationManagement Systems

$10 to $100 million

$5 to $50 million

$3.3 to $33 million

IV Consolidation Corporate Culture$100 to $500million

$50 to $250 million

$33 to $167 million

V DiversificationReplication of the Cycle

$500 million to $1 billion

$250 to $500 million

$167 to $333 million

VI Institutionalization Integration $1 billion + $500 million + $333 million +

VII Decline Revitalization Any Size Any Size Any Size

What happens when an organization has not made the successful transition from one

stage of development to the next?

Growing Pains

What are Growing Pains?

• Problems which occur as a result of inadequate organizational development in relation to business size and complexity.

• A common set of symptoms that something has gone wrong in the process of organizational development.

• A signal of the need to make the transition from one stage of organizational development to the next.

• A set of leading indicators of future financial performance.

Classic Growing Pains

• People feel that there are not enough hours in the day.

• People are spending too much time “putting out fires.”

• Many people are not aware of what others are doing.

• People lack understanding of where the company is heading.

• There are too few good managers.

• Everybody feels “I have to do it myself if I want to get it done correctly.”

• Most people feel our meetings are a waste of time.

• When plans are made, there is very little follow-up and things just don’t get done.

• Some people feel insecure about their place in the company.

• The company has continued to grow in sales, but not in profits.

Measuring Growing Pains

The Management Systems

extent to which an organization is experiencing growth related problems in moving from one stage of development to the next.

● Scores range from a low of 10 to a high of 50.

● For an organization to have the highest probability of success over the long-term, it must control (minimize) the extent of its Growing Pains.

Measuring

Growing Pains Severity (Risk)

How to interpret Growing Pains Scores

Growing Pains Scoring Interpretation

Score Range Color Interpretation

10-14 Green Everything is “OK”

15-19 Yellow Some things to watch

20-29 Orange Some areas need attention

30-39 RedSome very significant

problems

40-50 PurpleA potential turnaround

situation

Management Systems Global Database:Percentile Scores for Overall Growing Pains

GP Score Percent

10-14 3%

15-19 7%

20-29 50%

30-39 38%

40+ 2%

Growing Pains vs. EBIT*

* The regression equation is y = -0.8857x + 28.107, R2 = 0.4936, and is statistically significant at 0.0035.

y = -0.8857x + 28.107R² = 0.4936

10 20 30 40

Growing Pains Score

Growing Pains and Financial Performance

• High growing pains= low financial performance

• Low growing pains= high financial performance

Predicted Future Global Trends in Management

• Development of a Chief Systems Officer responsible for infrastructure development and management.

• Development of a Chief Organizational Development Officer responsible for organizational development.

• Increasing sophistication of mangers requiring validation of managerial frameworks, methods, and tools.

Results for Companies in Poland

Management Implications

• The key drivers of organizational success are the variables comprising the Pyramid of Organizational Development.

• When the Pyramid is not build well and the infrastructure is not appropriate to the stage of growth (“size” ) of the business, growing pains will occur.

• The faster a company grows, the more difficult it will be to create an equilibrium between size and infrastructure.

• Ultimate an organizational “wins” with infrastructure!

The Pyramid of Organizational Development™

• Helps companies continue to grow successfully.

• Helps companies avoid the pitfalls that lead to under performance and even failure.

• Helps focus development of competitive advantage.

• The top four variables comprise the “organizational infrastructure”

• This has important implications for competitive strength

• It is the key to understanding growing pains, which occur when infrastructure is not sufficient to support the size and complexity of organizations

Final Comments• All new ideas and approaches have these two characteristics:

– Threat or danger

– Hidden opportunity

• There are dangers to change.

• However, there are hidden opportunities and great benefits as well.

• These methods just described are a source of sustainable competitive advantage

• Example: Starbucks

– Starbucks’ product is a commodity.

– Yet Starbucks has become a global brand and a dominant company.

– Starbucks used this approach during its early years.

The Challenge for Business Enterprises in Poland

• Which companies will take leadershipin applying these methods in Poland?

• Which will become global leaders like Starbucks?

• The Polish Agency for Enterprise Development has issued a challengeand provided a first step.

• The next step is yours!

Further Reading in Building Sustainably Successful Organizations

• Eric Flamholtz and Yvonne Randle, Growing Pains, 4th edition, Jossey-Bass, 2007

• Eric Flamholtz and Yvonne Randle, Growing Pains, 5th edition, Jossey-Bass, 2016, (forthcoming)

• Eric Flamholtz and Yvonne Randle, Creating Successful Family Businesses, Stanford University Press, 2016 (forthcoming)

• Eric Flamholtz and Yvonne Randle, Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, 2011

• Eric Flamholtz and Yvonne Randle, Leading Strategic Change, Cambridge University Press, 2011

• Eric Flamholtz and Yvonne Randle, Changing the Game, Oxford University Press, 1998

• Eric Flamholtz, Effective Organizational Control, Kluwer Academic Publishers, 1996.

• Eric Flamholtz, Human Resource Accounting, Third edition, Kluwer Academic Publishers, 1999.

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