london business school case study on twenty

Every company is a prisoner of its past. The way it is structured and managed, and the

implicit values its people hold, are all shaped – for better or for worse – by the early choices

of the company’s founders. And once a company reaches a certain size, it is really hard to

change these basic principles and values.

So if you want to create a distinctive management model for your company, the best time to

do it is when you are starting out. Indeed, most of the well-known examples of companies

with distinctive management principles, from Google to WL Gore, were founded on those

principles, rather than developing them later in life. However, these cases are few and far

between. Most founders, unfortunately, duck the chance to create something unique, and

instead fall back on copying the dominant model that exists in their industry or, worse,

adopting whatever big company practices they have been exposed to.

The recruitment agency, Twenty, is built on values and a unique culture. Julian Birkinshaw reports on the creation and delivery of a new management model.

In this issueBuilding a better management model from the ground up The recruitment agency, Twenty, is built on values and a unique culture. Julian Birkinshaw reports on the creation and delivery of a new management model. > p1

Building blocks of collaboration Cross-unit collaboration is increasingly a critical strategic imperative for companies. A manager at Siemens provides an inspiring example of turning the concept into powerful reality. Julian Birkinshaw reports. > p7

Giving customers what they want When large numbers of customers visiting your website leave before getting a quote, something is clearly wrong. But, what can you do? Julian Birkinshaw reports on an innovative response. > p11

The David and Elaine Potter Charitable Foundation

Issue 20 | September 2011Labnotes

Insights, ideas and inspiration from MLab

Management 2.0

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Building competence through fast feedback Does quick feedback make a meaningful difference to a person’s level of competence? An experiment conducted by a team at leading Nordic insurance firm, If, set out to answer this question. > p14

Minimalist management: when less is more Do you aspire to add less value? When less really is more, perhaps you should. Ross Smith thinks minimally to maximum effect. > p17

Imperious institutions, impotent individuals More and more of us feel that our institutions are run for the benefit of those who are leading them. Gary Hamel argues a powerful case for change. > p19

Thoughts on management What makes the practice of management difficult? And are there better ways of getting work done through others? Jules Goddard offers a challenging new way of looking at these old questions. > p23

Building a better management model

from the ground up

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Accelerating the evolution of management

While most founders miss the chance to create something unique, the founders of the

recruitment agency, Twenty, did not. Paul Marsden and Adrian Kinnersley had many years’

experience in the recruitment industry: they had seen many agencies rise and fall, and

they knew how little loyalty most recruitment professionals had for their employers. So

they decided to set up their own agency with a view to creating something distinctive

and enduring.

Motivation and valuesTwenty started life in January 2009, in the depths of the recession. This made getting new

business a bit tricky, but they felt that there was no sense in waiting, as it takes time to build

a successful business anyway. Adrian Kinnersley reflected on their initial conversation:

“The very first exercise was, what do we want the business to feel like for a person who

works here? And therefore what are the values going to need to be for the business?”

A recruitment agency, after all, has few assets other than its people and their relationships,

so the two founders reasoned that they had to find some sort of raison d’etre to make them

worth working for. “We do not want to be the next Michael Page” (a large recruitment

agency) was a key mantra in these initial stages.

“We spent probably a disproportionate amount of time working through what that

experience [of working here] was going to be like, what we wanted the brand to be, how the

culture of the business would be, and then hanging that around a set of simple values that

everyone can know,” says Kinnerley. Using some outside help, and with a conscious desire

to learn from industries a long way removed from their own, the Twenty founders came up

with three core values which have now become fully embedded in the way the company

works. In Adrian Kinnersley’s words:

Life’s short – this means just get on with it! We want to build a big and successful business.

We assume clients want to deal with experts in order to recruit experts. So we only hire

people who have already proven themselves in the industry.

Crystal clear – this means no politics and complete transparency. A lot of recruitment

companies are disorganised, there is a lot of smoke and mirrors with people not knowing

what each other is doing, what each other is earning. Instead our culture is one of complete

clarity, so if something’s good, we’ll say it’s good; if something’s bad, we’ll say it’s bad.

Be eclectic – this means we celebrate diversity in our style of operating. A lot of recruitment

companies tend to have a type of person they gravitate to, so they’ll hire “posh” people from

the same schools or they might hire the young and hungry type. We’re simply trying to find

the best people, and different personality types fit different segments of the market. So they

are quite an eclectic bunch, in terms of how they solve problems for our candidates and

clients and can learn from each others unique perspective.

These values helped to push the company off in the right direction, and to guide the

founders in their initial hiring activities. And despite starting Twenty in the depths of

recession, the company grew quickly, gaining enough business to be profitable in their

second year of operation. As of mid-2011 Twenty had 40 employees working across

eight segments.

But of course values don’t mean anything if they don’t reflect the actual way people

work. So the first step, after getting the first few employees on board, was to link them

to the evaluation system. Explains Adrian Kinnersley: “Every six months our employees

get appraisal scores, and, therefore, we can rate our business on whether or not we

are living our values. And our whole career ladder is now built around these measures.

Employees can achieve promotion, pay rises, and more benefits by working in a way

that makes us both profitable and valuable, and this means among other things staying

true to our core values.”

Building a better management model from the ground up continued...

Paul MarsdenChief Exectutive

Adrian KinnersleyManaging Director

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The flip side, obviously, is that this is not for everyone. Directors are given a peer rating as

to whether their teams are delivering on the Twenty values, and if their team aren’t above

the bar on these values ratings, they lose a significant proportion of their bonuses. Not

surprisingly, employees who don’t fit don’t tend to last very long, although Twenty’s staff

turnover is very low as it has refined its interview process to filter out those who will not

thrive in the Twenty environment.

The second step in giving the values some teeth was to ensure that new recruits bought

into them. “Each time we get a new intake, we have an offsite day where the recent recruits

go through the values and tell us what they mean to them, and how they think they can

be measured,” Adrian Kinnersley explains. “And then, if on one of those offsite days they

can come up with another unique way of measuring one of the values, that goes into the

appraisal and everyone sets their bar against it. This happens every three months. We also

ensure longer term employees and directors attend these days to ensure we are aware of

what attracts new talent to the business as we evolve. This ensures the feeling of ownership

endures and we continue to hire the best available recruiters in the market.”

OwnershipA second defining feature of Twenty’s distinctive model was the founders’ approach to

ownership. They knew from first-hand experience how different it feels when you have a

significant equity stake in the business you are running. So they wanted to recreate that

feeling for their directors – the people running each segment of the business – so that they

would get access to the best talent. “The proposition we offered was that Twenty would

be like a finishing school for running your own business – you build a business, with our

support, and we will make sure you get a fair share of the rewards. We expect many of

these guys will start their own recruitment businesses when they move on from Twenty,”

says Kinnersley.

After reviewing a number of different options, the Twenty founders

developed an Enterprise Management Incentive (EMI) option scheme, with

the blessing of the UK tax authorities. The details of such a scheme are

complex, but in essence each group of employees has their share class, and

options in that share class. There is then a relationship between the profit

that they generate and the percentage of their share class that they own.

How does this work in practice? The director of one segment, say

recruitment in the IT industry, has his own profit and loss account, including

a recharge for central costs. He can make his own choices about how to

grow that business. He and his team get the standard group commission on

each person they place in a job. The directors get an annual bonus related

to the profit they generate over the course of the year. And they receive

additional equity relating to the profits left after the bonus. “It’s an attractive

system, and it enabled us to get really good people as directors. The point

is, these people feel as much ownership as we do – they know they can

make a lot of money if they are successful,” says Adrian Kinnersley.

Of course a share scheme of this sort has its limitations as well, the biggest being

that the options earned have no real value until the company either floats or gets sold.

So in structuring the company in this way, the founders explicitly committed to a

change in ownership five or six years down the road, much in the same way that private

equity companies plan for a medium-term exit from all their investments. The deal for

the directors is indeed crystal clear: stick around for five to six years, help build a

successful business, and you will make a very nice return. Leave before this, and you

lose your share options.

“ Each time we get a new intake, we have an offsite day where the recent recruits go through the values and tell us what they mean to them.”


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The scheme also encourages collaboration: As Kinnersley notes: “Although our directors

are working on building their individual bits, they are all in reality cross-owned. So by

helping each other to get up and running, the directors are increasing the value of the

potential multiple that they can get when we exit.”

Of course, some parts of the company are more profitable than others, but the share

option scheme means that everyone benefits from the success of others. And consistent

with their values, this information about different rates of profitability across the divisions is

transparent. This means that everyone has a pretty good idea what each other earns. Base

pay is not shared, but commission rates and all option plans are published for all to see.

Making it work: Living the valuesWith a tightly-defined set of values and a highly focused compensation model, there is less

day-to-day management work required by the two founders than in a typical recruitment

company . The directors make their own judgments about how best to develop their

business streams; the founder’s job is about ensuring the long-term direction remains

clear, and reinforcing and enhancing their chosen management model.

“We see our role as ensuring the growth doesn’t hit bottlenecks and that we leverage our

experience as much as possible,” explains Adrian Kinnersley. “Take transparency, for

example, which is a key part of how we work. Last night we had a month end meeting,

so projected on the wall for everyone to look at are all the numbers in the business, who

generated what revenue. And decisions that we’re making in the business, and why, are

completely communicated. Moving to the new office, for instance; everyone got involved

with the design process if they wanted to.

“I was at another company where I was on the operating board, and the question kept on

coming up, how do we spin this news? My question was, why are we spinning it? If we have

to spin it, something’s not right, so why don’t we just tell people what we’re doing.

“Our values are also expressed in our physical surroundings. We have a library, labeled up

with the values, and we have a decent collection of books now reflecting each of our core

values. It’s the same with our physical space. We asked the employees, what would you

like your work place to look like? And now all the colours in all the rooms reflect the colours

of the brand, and so this a green room for financial services, orange room for commerce,

blue room for professional services. The imagery and the design on the floor is supposed to

reflect the crystal-clear water drops that are on the website”.

“ We have a library, labeled up with the values, and we have a decent collection of books now reflecting each of our core values.”

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Growth and its limitsTwenty is currently the fastest growing recruitment agency in the UK, profitable, and

expanding to New York and Switzerland this year. Turnover in the first year was £890,000,

rising to a little over £4 million in the second year, and the budget for next year is about

£12 million.

The original plan was for about £5 million in profits in roughly five years. On its current

trajectory, Twenty is on target. If all goes well, there will be a trade sale, private equity

acquisition or listing at that point, but with the lock-in period that goes with all such “exit”

strategies, the directors know they are looking at a commitment for a few years beyond the

date of the transaction.

But how big can Twenty become? What are the limits to this model? Adrian

Kinnersley has done his homework on this issue: “Recruitment companies

tend to struggle at about 70-80 people. There’s a couple of reasons

for this. Operationally and culturally, you’re becoming a different

type of business, with different management challenges.

Someone who is comfortable managing five people

suddenly has to manage 25, and that changes a lot. And

actually space is an issue, because if you’re going to

move out of an office that accommodates 70 to 80

people then the cost differential on a space that

accommodates 100, 150 people is actually quite

significant. So committing to that, it often stops a lot

of people in their tracks.

“So what we’re trying to do is to see Twenty as a

group that houses eight separate business streams.

Our last company, Astbury Marsden, reached 70

people in just two streams (IT and finance), so we

think we can get to a few hundred employees if we

are careful about it. Of course, our new hires are more

like regular employees, but we’ve got a more generous

commission scheme than the competition, and there is

scope, if they do really well, to earn some share options in

the business area in which they’ve contributed to building. We

expect 20 per cent of the business to be owned by the people that

work in it. We’ve also hired a COO with a background in a much bigger

recruitment businesses, who we have asked to build the infrastructure to

ensure it scales. And we have a non-exec who is a culture and branding specialist, to

makes sure we keep this at the core of our growth.”

What about technology? Is the traditional recruitment industry going to be disrupted by Google

or someone else? “These days as a recruiter, you have to be an aggregator rather than a

database. In other words, how we sell our service to a client now is not ‘we’ve been going

20 years, we’ve got hundreds of thousands of CVs’. Instead, the pitch is ’we have superior

expertise at extracting and delivering the talent for your business’,” says Kinnersley. “So some

parts of the recruitment business have already been automated, other parts are gradually

changing. But there are still important parts of the business systems where human touch

is vital. For example, a significant proportion of the placements wouldn’t happen without an

expert intermediary ensuring everyone’s expectations are managed, and the careers of the

candidates are remaining on track for their ambitions. You can’t automate the emotions of a

decision making process as complex as this, when families, career’s, money, and locations are

all factors unique to each individual.”

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Key insights

Take time to build the right values and systems at the outset.

The founders of a successful company have a lot to answer for: some, such as David

Hewlett and Bill Packard, are still revered decades later for their vision and wisdom;

others are quietly forgotten as the next generation of leaders find themselves saddled

with ill-thought out or outdated ways of working. Paul Marsden and Adrian Kinnersley

could easily have followed the conventional wisdom in their industry, and adopted the

implicit management model everyone else was using. But they were open-minded

enough to question this conventional wisdom, and to ask themselves if there were better

ways of working.

To think like an owner, you have to have enough of a stake to make a difference.

Perhaps the biggest problem facing organisations of any size is that employees are

not owners. We are often exhorted to think like owners, but the fact is we aren’t. So we

do things that simply wouldn’t make sense if it were our own company – we shirk, we

take time off, we spend budgets because we have them, we fly business class because

we are allowed to, and we have meetings and conversations to cover our backsides.

Start-up companies don’t have these problems, because the owners and the employees

are the same people. To some extent mutually-held companies, such as John Lewis,

address these problems, but because individuals have such a small stake they still fall

prey to these pathological behaviours. Twenty is an interesting example of a company

that is trying to spread the true feeling of ownership among all its directors, and so far it

seems to be working – though it becomes harder the bigger the company gets.

A medium-term exit focuses the mind and increases engagement.

Research in a variety of settings has shown that the prospect of a clear finishing line

up ahead helps to increase motivation and engagement. This is why many companies

divide work up into discrete projects or ‘campaigns’. So Twenty is cleverly engineering

its ownership model to get its employees thinking of the company as one five-year

project, at the end of which they will all reap a handsome return. Of course, private

equity companies do this as well with their portfolio companies, but it is very rare to see

a start-up venture build such an approach at its outset. It does make you ponder, why

do we assume that companies should be built as if they were to last forever? There are

benefits in having timeless goals, but there are also benefits in having much shorter-

term goals as well.

Julian Birkinshaw ([email protected]) is Professor of Strategy &

Entrepreneurship at London Business School, and Senior Fellow of the Advanced

Institute of Management Research. His latest book is Reinventing Management

(Jossey Bass, 2010).

NEXT ARTICLE: BUILDING BLOCKS OF COLLABORATION

“ Research in a variety of settings has shown that the prospect of a clear finishing line up ahead helps to increase motivation and engagement. ”

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This is a story of how a large division of Siemens sought to develop a new integrated offering

for its major global customers. Or, rather, it is the story of one mid-ranking manager, Christian

Doll, who took it upon himself to help Siemens develop such an offering. Like many corporate

entrepreneurs before him, Doll pursued an opportunity that went way beyond his formal job

description: one that required input from people far beyond his sphere of influence. He made

some mistakes, but he did some clever and innovative things, and ultimately the project was

a success. There are lessons for all of us in Christian Doll’s Service Sourcing Project.

Doll worked for Siemens IT Solutions and Services (SISS), a 40,000-person division of

Siemens competing in the enormous IT services sector, against the likes of Infosys,

Accenture and EDS. In this brutally competitive industry, clients demanded integrated

solutions that were both innovative and low-cost. Siemens, with its high cost base, was

increasingly seeking to deliver solutions that used people from third-party suppliers as

well as its own people.

In 2007, Doll was assigned to a large bid where the client was asking Siemens to provide

on-site services for handling technical problems in 100 countries. “We did not have these

technicians in our organisation. We had to purchase services for an 80,000-person client

in a hundred countries. And that was a real challenge,” Christian Doll later reflected.

While the bid team eventually made this project a success, Doll felt it was a complex and

high-risk game they were playing. “I wanted to do something about this, to avoid the

situation occurring again.”

How might Siemens have done things differently? Doll recalls his thinking: “Developing a

proposal for new business can be complex. It’s vital to engage with potential third party

service partners as early as possible in the proposal development process, especially for

multi-national service projects. Procuring the services of these third party providers can be

a long process, lasting anything from six to 12 months. It draws on different skills, roles and

input from various departments in pursuit of the best providers. For example, we need input

from procurement, the delivery organisation, solution design, key customer account teams,

legal support, quality audits, risk management, and project management for the transition

and service transformation. Then, after contracts are signed, we have to deliver on our

promise, which again involves multiple functions working together.

“While there is a clear need to proactively manage these partners, our business wasn’t

set up to do this efficiently. We had limited processes, resources and experience in this

area. The bid development process was thus far more complicated than it should have

been and this had the potential to damage our competitiveness. This was the challenge

that I wanted to address.”

Consider, for a moment, the magnitude of this challenge: Doll wanted to get eight internal

divisions of Siemens to collectively rethink the way they would work with external providers,

so that they could come up with an innovative offering for their global clients. There may be

tougher management challenges out there – reworking a bank’s compensation system comes

to mind – but this is about as tricky as it gets. And consider, also, that this was not Doll’s

official job, it was simply something he felt was sufficiently important that it needed to be

done anyway. “It was not my job to think about processes across the organisation; it was my

job to design services for customer needs,” he recalls.

Building blocks of collaboration Cross-unit collaboration is increasingly a critical strategic imperative for companies. A manager at Siemens provides an inspiring example of turning the concept into powerful reality. Julian Birkinshaw reports.

Christian Doll

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Building and focusing the team Doll knew what he wanted to do, and at a personal level the timing was right because he

had signed up for a part-time MBA in innovation and business creation at the Technical

University of Munich. This gave him access to a host of new techniques and ideas. So what

were the first steps?

Doll began canvassing his colleagues, beginning with his boss who supported the proposal

to set up the service sourcing project. He approached some 20 people in different roles

below board level. All of them agreed that the sourcing and management of third party

service providers needed to become more professional. They were prepared to support the

project and offered help, for example by assigning resources to the project. This buy-in

from key stakeholders was crucial in getting the project off the ground. Doll says: “The main

challenges at this early stage were to approach the right stakeholder at the right time and to

convince colleagues about the processes and tools that we planned to use during the project.

This buy-in ensured that both the project team and supporting management boards (steering

board, advisory board) were defined and assigned. Managers allocated employees to the

project team and even volunteered to be members of the management boards. An important

result of this process was that the employees actively involved in the project came from all

those departments with a perspective on service sourcing and/or field services.”

While sanctioned at corporate level, the project team members also had to continue with

their day jobs. Much of the work was undertaken out of hours because local legislation

prohibited employees working more than 40 hours a week. This out-of-hours requirement

meant that the project had to enthuse all those people involved. Doll continues: “It had to be

designed in such a way that everyone really liked what they were being tasked to do. Without

this enthusiasm, why would they give up their spare time? I think this is a valuable lesson in

any project of this nature.”

At around the same time as Doll’s service sourcing project got underway, a new team was set

up within the business to manage the operational aspects of working with external partners.

While this began to address the delivery aspects of third party relationships, it still left open

the issue of how best to engage with subcontractors during the earlier stages of a project.

The focus of the service sourcing project was thus sharpened: to propose a new model for

the sourcing of services from the external market. The team agreed to come up with a vision

and strategy for managing external service sourcing – with a specific focus on field services.

The team analysed the situation for field services management at both a local and global

level and identified the different field services components and the opportunities to integrate

them into a comprehensive new business concept. The outcome was a presentation of the

new business concept to the Siemens IT Solutions and Services management boards being

set-up for this specific project. This latter event would throw up an interesting lesson in how

best to communicate a new or innovative idea.

Prototyping the futureUsing ideas from the MBA programme, Doll used a fairly standard process with six key steps:

Knowledge exchange using mood boards and storytelling techniques; Ideas generation and

brainstorming; Modelling and discussion; Prototyping of the business concept; Feedback

during play phase (road shows); and Finalisation of the business concept prototype and

conclusion of the project.

But he also decided to push some slightly unusual ideas, especially in the area of visualising

and prototyping new ideas. “I decided to use LegoTM building blocks to help model the

service processes in 3D. Often it is hard to express something abstract or complex in words,

so I asked the team members to build a model, a prototype, out of Lego. While it’s not a new

idea, it was certainly something that provoked a reaction in the team members.

Building blocks of collaboration continued...

“ It had to be designed in such a way that everyone really liked what they were being tasked to do. Without this enthusiasm, why would they give up their spare time?”

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“The first time the Lego bricks came on the table, people were really confused

– we are playing with Lego, is that leading to anything? So I came up with

a very small Lego model, where I showed how the top-level process

might look; and with that they understood and it became an

important part of our work.

“Everybody was buying in except one person. He couldn’t

get beyond the idea of Lego as a children’s toy,

preferring instead to illustrate our business concepts

in PowerPoint. His was the only real dissenting

voice. I had a tough discussion with him, in front of

the others, and at the end the others felt trust in my

approach and they wanted to try it out. The guy who was

not happy to work with Lego never again showed up in

the project. It was a key learning – sometimes people

cannot cope with a new way of working.”

Doll has no doubt about the value of using prototypes. “Performing innovation projects,

working with prototypes in a trial and error-mode and involving customers and stakeholders

along the whole innovation project lifecycle can help to reduce uncertainty and ignorance

while developing new products, services or processes. As a result the risk of failure for a

newly developed approach (products, services, processes) can be significantly reduced.

Prototypes can be used in several phases of an innovation project to discover, develop and

communicate new ideas. Nowadays there are several tools available to generate prototypes.

Lego is just one of them.”

Selling the conceptWhile the value of using the Lego prototypes was clear to the service sourcing project team,

they didn’t know how it would look to the steering and advisory boards. As Doll recalls,

“Everybody was worried: how would management react if they see a big Lego town on the

meeting table?

Doll sensibly got some early buy-in: he showed the Lego town to one senior member of the

steering board. “At first this executive was shocked, but I took him through the logic and

he liked the idea. He gave me the backing I needed to sell it to the others”. In fact, during

one board meeting, the Lego prototype helped to push things forward: “I remember one

board meeting where they were first confused, but then the most senior guy on the board

said, thank you for using Lego, now I understand better what your ideas are about, but I

am encouraging you to be more crazy; it’s too soft, too conventional at the moment.” So

in further workshops the team developed the service concepts still further: for example, a

Global On-Site Services (GOSS) structure was put forward for a department responsible for

managing service contracts with service providers in the delivery phase.

But the Lego prototype also proved to be something of a distraction when Doll presented

the final project findings to the steering board. He was given an hour to convey the project

findings. He worked up a PowerPoint presentation and, to help clarify things, he brought the

prototype with him to the meeting. As he recalls: “I wanted to explain the main ideas using

the sophisticated Lego prototype, but there was one person on the board who I was not able

to brief up front. She raised an issue that was not part of my presentation and that killed the

whole presentation. I spoke to one of them afterwards, asking where I had gone wrong, and

he said, the prototype is good for fostering discussions, but that is not what you want in a

Board presentation. That was a lesson learnt for me.”

What were the outcomes? Despite the problems at the final board meeting, many of the ideas

developed by the Service Sourcing project were implemented. The details are confidential,

but they included novel ways of pre-selecting service providers and defining a “best and


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final offer” to the customer, as well as much greater clarity around who should be responsible

for starting an engagement. Some of the more ambitious ideas did not work out – for example

one idea to use open-source principles for delivering field services was deemed too radical.

Responsibility for implementing these ideas was handed over to the manager responsible for

service delivery to external providers. Some members of the project team joined that group,

which by 2011 numbered 50 people. Doll himself moved out of Siemens IT Solutions and

Services in 2010 and joined Siemens Corporate Technologies, an internal consulting group

helping the company to be more innovative – something he feels very passionate about.

LessonsThe power of collaboration. Large organisations don’t make collaboration easy – the formal

structures and incentive systems push us into silos and it takes a lot of effort to overcome

these pressures. But for a business like Siemens IT Solutions and Services, effective

collaboration isn’t optional – it is the essence of what it is offering its customers. So projects

like the one Christian Doll put together will have to be become the norm. In reflecting on

his experience, Doll observed: “Our service sourcing project convinced me that drawing on

stakeholder input and interviews with relevant parties to gather information, combined with

prototyping and mood boards, really can bring new ideas to fruition.”

Prototyping accelerates innovation. Karl Weick’s famous dictum “How can I know what I think

until I see what I have said?” reminds us that innovation is an iterative process, not a linear

one. We try something out, we make sense of it, and then we try something else. Prototyping is

essentially a way of accelerating the natural cycle of invention, development and reflection. As

Doll observes, “The creation of knowledge is a key discipline for companies trying to achieve

a competitive advantage via innovation. As part of this, prototypes can be used in several

phases of an innovation project to discover, develop and communicate new ideas. It’s true

that building a 3D prototype for an intangible product might seem strange at first, but it is a

powerful enabler as the project progresses since it helps to overcome misunderstandings and

thus increases productivity in all phases of a project.”

Navigating the corporate immune system. Life as a corporate entrepreneur is never dull:

Christian Doll saw himself navigating through a “corporate immune system” that seeks to

reject alien bodies and it is testament to his tenacity and skill that he survived. The tactics

he employed are well known: he made a compelling case for change, he got early buy in

from his boss, he built advisory boards to co-opt potential detractors into the project, and he

neutralised the threat from those who didn’t like his approach. But he made mistakes as well,

and he was agile enough to adapt his project accordingly.

Something old, something new. One specific challenge Doll faced was how radical the

project should be. If he had broken too many rules, the corporate immune system would

have rejected him; but if he had done things entirely in the traditional way, nothing novel or

interesting would have emerged from the project. The Lego-based prototype was a case in

point: he took a risk in pushing it and it helped the team come up with creative ideas, but

it also disrupted his final board presentation. Corporate entrepreneurs, it seems, have to be

conformists and mavericks at the same time – they need to judge which rules to break, and

which ones to follow.

It goes without saying that the Service Sourcing project was risky, but in Doll’s view the value

it created far outweighed any potential negatives. He concludes: “This approach to innovation

can help to reinvent both a company and its products as it copes with competition in a

constantly changing environment.”

Julian Birkinshaw ([email protected]) is Professor of Strategy & Entrepreneurship

at London Business School, and Senior Fellow of the Advanced Institute of Management

Research. His latest book is Reinventing Management (Jossey Bass, 2010).


“ The creation of knowledge is a key discipline for companies trying to achieve a competitive advantage via innovation.”

NEXT ARTICLE: GIVING CUSTOMERS WHAT THEY WANT

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Giving customers what they want

When large numbers of customers visiting your website leave before getting a quote, something is clearly wrong. But, what can you do? Julian Birkinshaw reports on an innovative response.

The leading Nordic insurance firm, If, was worried about the quality of the online experience for

its customers. Too many dropped out of the buying process before getting a quote. It took this

problem as the starting point for an innovative experiment.

First, a team was set up to test the hypothesis that by increasing customer centricity in its

operations, If could improve customer satisfaction and increase sales. Central to the six-man

team’s approach to tackling this hypothesis was the decision to directly involve customers.

This, it was believed, would yield greater customer satisfaction leading to a higher hit ratio,

resulting in an immediate increase in sales.

The experiment focused solely on the purchasing experience. As If’s head of marketing and

communication Katarina Mohlin explains: “We had just 6-8 weeks to design, implement

and analyse a prototype model that would put our hypothesis to the test. For this reason, we

needed to focus on an understandable and manageable area of our online business. We chose

the customer purchasing experience in our private insurance business.”

Experiment scope definedThe experiment team of Katarina Mohlin, Jonas Billberg, Tiina Autio-Begley, Ville Haapalinna,

Lars Karlsson and Jörgen Hidén recognised that the speed of the digital world meant the

typical three-year design, develop, test, pilot, launch cycle for new service launches would not

be quick enough to affect a transformation of the company’s online presence. The truncated

timeframe was ideal for this experiment. It meant that shortcuts would have to be used, outside

the more traditional project management model.

For example, they quickly decided to avoid writing and seeking approval for a formal business

plan – that would have taken far too long. The experiment scope was defined as follows:

• Focus on private customers in Sweden buying car and home insurances

• Analyse current understanding of existing online purchase experiences

• Create a prototype of the optimal customer centric online purchase experience

• Run usability tests on the prototype to verify (or not) the hypothesis based on customer input

• Create recommendations for new online purchasing process.

With the scope agreed, a pragmatic division of tasks saw two work streams being established.

The first of these was a usability analysis, for which a series of usability tests conducted the

previous year provided an excellent baseline. The second work stream focused on setting up

and testing the prototype online purchasing experience.

Work stream 1: Usability analysis. Following advice from the company’s marketing team, rather

than re-inventing the wheel, the team dug out the previous year’s usability study findings.

These flagged a number of issues with the existing website. Customers felt the whole process

was too long, with too many questions to answer before they could actually make a purchase.

In addition, If put all its products on the home page, seeing it as a shop front for its own

purposes, rather than making it easy for the customer. Customer feedback was, “I only want to

buy one insurance, so let me do that first and then I might consider buying more”.

Richard Koch

From left:Jörgen HidénKatarina MohlinTiina Autio-BegleyVille Haapalinna

Inset from left:Jonas Billberg Lars Karlsson

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“In a nutshell,” says Jorgen Hiden, “our customers were telling us that the purchasing

process was too complicated. They wanted to see prices quickly with nothing else getting

in the way. We also carried out some analysis of when customers dropped out of the

purchasing process and this too suggested that the earlier we showed the price and the

fewer questions customers had to answer, the less likely they would be to drop out of the

process early.”

Work stream 2: Design and prototype. This work stream used the findings from the

usability analysis to work on the design and test a prototype of a new purchasing

experience. They contracted with an external web agency for the website build. “We had

two key factors to consider,” notes Katarina Mohlin. “First, we wanted to make the process

fast and simple, so our customers could quickly get an estimate for their insurance.

Second, we needed to ask ourselves what questions were an absolute requirement in

order to give a good price estimate, such as their social security number and vehicle

registration number. Our objective was to reduce 12-15 underwriting questions down to

between two and six.”

The team recognised that reducing the number of questions

would have a risk implication for the business. Mohlin continues:

“We asked how much knowledge about the customer and their

risk profile we really needed, bearing in mind that the more we

know about a customer, the better able we are to manage the

risk. So, in a sense, we had to make a trade off between this and

attracting and retaining more customers with a simpler online

experience. In reality, when we ranked the questions we needed

to ask, the absolute priority ones didn’t really change; it was more

a case of weeding out the unnecessary questions.”

The seniority of the experiment team members – all were heads

of their respective business units, such as the head of distribution

for Sweden and the head of business development for the Baltic

countries and Russia – clearly meant that decisions pertaining to

risk could be made by the project team. There was no ‘selling in’

of the concept because these were the very people from whom

permission would be sought if it was a less senior team.

In addition, the prototype design stage involved a number of

people with direct customer experience, such as the internet

sales manager for Sweden. This provided a vital customer

perspective, before testing on actual customers began.

Usability testsNine customers were invited to take part in the usability test. They were representative of

different age groups, gender and place of residence (town or country). Says Mohlin: “We

wanted them to have some internet experience, but didn’t need them to be experts. After

all, we were trying to test a simpler purchasing experience.” The participants performed

12 tasks using the prototype and were asked to think out load because they were filmed

during the process. “We wanted to gauge their reaction to different elements of the

purchasing journey,” recalls Mohlin. For that same reason, the mouse movements of each

participant were observed to assess how confidently they carried out different tasks.

And the result? There was unanimous approval for the new, simpler purchasing process.

Indeed some of the participants found it hard to believe that buying insurance could be

so easy. Importantly, they were able to provide feedback on ways to improve the prototype

and this resulted in some fine tuning after the test period.

Giving customers what they want continued...

“ The seniority of the experiment team members – all were heads of their respective business – clearly meant that decisions pertaining to risk could be made by the project team.”

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Next stepsThe experiment team believes it has strong evidence for taking the prototype and moving

into a real life pilot. It accepts that as a prototype tested only on a handful of customers

in one country, the findings are not conclusive, but all the findings support the initial

hypothesis: increasing customer centricity will improve customer satisfaction and

increase sales.

The team has recommended the introduction of a new purchasing process, based on a

simpler, more user-friendly web interface.

So what does the experiment tell us about the process of making change happen

quickly? The team lists a number of factors in its ability to develop a hypothesis, design,

implement and test a prototype and recommend next steps in just eight weeks:

Tight timescale: The restricted timeframe was, in fact,

a factor in the experiment’s success. “It focused us and

meant we had to cut away all those project management

methodologies that add to the time of making change

happen,” says Katarina Mohlin. “We had to identify

shortcuts, like using existing usability studies, rather than

setting up a brand new focus group.”

Senior level team members: “We had decision makers

in our team. This is very important and allowed us to

circumnavigate certain processes, such as drawing

up a business plan, which would have taken too long.

Essentially, we had all the necessary permissions and

resources within our group – it got us from A to B

very quickly.”

Experiment vs pilot: As with other If experiments, the

value of developing a prototype is huge. “This was an

experiment, not a pilot,” notes Jorgen Hiden. “This

wording is crucial, because it is about allowing an idea

to be quickly and cost effectively brought to fruition as

an experimental prototype. A full-blown pilot, on the

other hand, requires a detailed business case with cost

rationalisation and typically follows a prescribed project

management methodology. Prototyping is both cost

effective and fast.”

Inspiration/innovation: The team chose to try out new

ways of measuring customer responses to the prototype.

They videoed the customers and analysed their mouse

movements so there was no doubt about their reaction.

And finally, the Customer Centric experiment team believes that this should be just the

start of a portfolio of customer centric development projects. “Based on our experiment,

we recommend making the involvement of customers mandatory in all our development

work to increase sales and customer satisfaction,” concludes Mohlin.




Giving customers what they want continued...

NEXT ARTICLE: BUILDING COMPETENCE THROUGH FAST FEEDBACK

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Building competence through fast feedback

Sometimes it’s the little things that count: like someone giving you feedback on a job well done or a helpful tip on how to improve a business process. Could such feedback actually make a difference to a person’s level of competence? An experiment conducted by a team at leading Nordic insurance firm, If, set out to answer this question.

A competent and knowledgeable sales team reflects favourably on its employer.

But just how easy is it to improve the competence of your salespeople? As part of an

ongoing programme of experiments aimed at investigating and prototyping new business

models and services, a team at If set out to test the simple hypothesis that feedback

improves competence.

The decision to focus on this aspect of competence came after the experiment team (of

Klaus Thomsen, Morten Byholt, Torgeir Jacobsen, Tell Tornblad, Marketta Helokunnas,

and Morten Thorsrud) uncovered some interesting statistics: 70 per cent of all workplace

learning is acquired on-the-job, 20 per cent from colleagues and 10 per cent from formal

training courses.

Klaus Thomsen, Head of Sales & UW, Commercial Denmark, recalls: “With such a clear

distinction it was obvious to us that we should focus our experiment on an aspect of on-the-

job learning. We began to hypothesise that learning was being hampered because we do

not give or receive enough feedback on how we’re doing. We’re all so busy in our work that

there is little time for feedback.”

Academic research bears out the team’s thinking that the quality and frequency of feedback

improves competence levels. The team had a six-week timeframe in which to develop the

test model, implement it and measure the results. This time limit shaped the nature of the

experiment, as Thomsen notes: “We had to work quickly. We couldn’t spend weeks on

planning because this would eat into the amount of time to actually conduct the experiment

and measure the outcome.”

The team quickly decided that simplicity was the key. A simple, rapid experiment, efficiently

managed could be equally as effective as a long drawn-out experiment. And they were

right. It was vital to select an area of the business that was small enough to be able to move

quickly, yet important enough for the results to be taken seriously at a wider corporate

level. Thus the experiment focused on the business sales channel in Denmark and elicited

feedback from its customers.

Keeping things simpleThe process of gathering this feedback was also kept as simple as possible. Questions

put to the customers were pared down to the minimum needed to provide an adequate

measure of changing competence levels. 100 customers were initially invited by the Danish

sales team to take part, with 60 agreeing to do so. The experiment team offered both the

salespeople and customers an incentive to take part: the chance to win an iPad. The price

of two iPads (one for the sales winner and one for the winning customer) was the extent of

the cost of running this experiment.

Any requirement for new IT system builds would have added significantly to these costs

– and to the time needed to get the experiment up and running. As such, the team opted to

use an existing IT tool for managing the experiment process.

From left:Tell Törnblad – Sweden Klaus Thomsen – Denmark Morten Thorsrud – Norway Torgeir Jacobsen – NorwayMarketta Helokunnas – Finland

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After an initial face-to-face sales meeting with one of the Danish salespeople, each

participating customer was sent an email with a link to a questionnaire asking the

following questions:

These questions were drawn up the experiment team but verified by the sector leaders

in sales. This ensured buy-in from the sales teams involved. Customers were asked to

respond to the questions immediately after the If salesperson called on them.

The team members were aware that a proper test required careful measurement before

and after feedback was provided to the salespeople on how they were doing. So they

carefully waited until they had got the first 20 responses back before starting to provide

the feedback. This would provide a baseline against which any changes in customer

perception about the salesperson’s performance could be measured. The customer

ratings were then measured in two further time periods, after 40 responses and then

after 60.

Improving competence levelsThe results were significant, and highly satisfying. A clear improvement in performance

was visible between the initial feedback session and the ensuing two stages, exactly

as predicted. Customer feedback showed that the salespeople were more responsive

and better understood their problems as the experiment progressed. Ascertaining this

result within the experiment period was, once again, down to keeping things simple.

Customers rated the salespeople on a scale of 1-5 with 5 being the highest. At the

experiment outset, the average rating stood at 4.1. When the experiment concluded the

average rating stood at 4.5.

Building competence through fast feedback continued...

Was the sales person seen as service oriented and engaged?

Did the sales person give enough advice?

Did the sales person know enough about your branch and

your needs?

Did the sales person give clear information regarding what

should happen after the meeting – next steps?

What was your experience of the sales person’s personal

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

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Some areas showed more improvement than others. Question 1, for example, (Was the

sales person seen as service oriented and engaged?) began the survey with a rating of

4.1 after the first phase of feedback and finished with a rating of 4.8. Question 4 (Did

the sales person give clear information regarding what should happen after the meeting

– next steps?) began with a relatively low rating of 3.9 and ended with a rating of 4.5.

Just one question showed no improvement in the customer perception of competence:

question 3 (Did the sales person know enough about your branch and your needs?).

This came as no particular surprise to the experiment team as Morten Byholt explains:

“Customer feedback on the other four areas of competence could elicit a rapid response

on the part of the salesperson. For example, someone hearing that they weren’t

giving enough information about ‘next steps’ simply needed to ensure they had this

conversation at their next customer meeting. But the question concerning knowledge

of the customer’s branch and needs would necessitate the salesperson spending

time finding out more about his customer – and time was something we didn’t have

in this experiment.”

Experiment outcomeRapid feedback of this type can lead to behavioural changes. The experiment results

leave us with no doubt that customer feedback can have a significant impact on

competence levels. This is not exactly news; after all, it was the hypothesis that the

experiment set out confidently to test. So if this is a known fact, why is feedback not

part of a consistent approach to learning as opposed to being delivered once a year in

an annual appraisal? “It’s all about the knowing-doing gap,” comments Klaus Thomsen.

“We know feedback matters and our experiment reinforces this. But when it comes

to the day to day reality, we often fail to do it right.” This is a very common problem

in large organisations.

In addition to supporting the hypothesis, the experiment team also demonstrated the

value of keeping things simple. Klaus Thomsen says: “By refusing to get bogged down in

designing an elaborate experiment and by engaging with all the stakeholders (customers,

salespeople, sales leaders) in a simple, straightforward manner, we have shown that it

is possible to affect change in a very tight timeframe. Even the fact that one of the areas

customers were asked to rate showed no improvement supports the argument that the

simpler a change is to implement, the more likely it is to happen. Yes, keeping things

simple really does work.”




“ Rapid feedback of this type can lead to behavioural changes. The experiment results leave us with no doubt that customer feedback can have a significant impact on competence levels.”

Building competence through fast feedback continued...

NEXT ARTICLE: MINIMALIST MANAGEMENT: WHEN LESS IS MORE

Do you aspire to add less value? When less really is more, perhaps you should. Ross Smith thinks minimally to maximum effect.

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Minimalist management: when less is more

In 1855, Robert Browning published a poem about the Italian Renaissance painter Andrea

del Sarto, introducing the term “less is more”. The phrase was adopted by architect Ludwig

Mies van der Rohe to describe minimalism as an “aesthetic tactic of arranging the numerous

necessary components of a building to create an impression of extreme simplicity, by enlisting

every element and detail to serve multiple visual and functional purposes (such as designing a

floor to also serve as the radiator, or a massive fireplace to also house the bathroom)”.

A few weeks ago, a manager I know said something great as we discussed his influence on

his team’s culture. He quipped, “I need to work on adding less value.” This could be one

of the greatest aspirations for the future of management ever articulated, and the perfect

slogan for Management 2.0. Call it “minimalistic management.” It takes a confident leader to

recognise that the natural tendency to dive in and offer an opinion, to justify their existence by

“adding value” with their “leadership” actually disrupts, confuses, and derails the team, rather

than helps. While managers may feel these actions and behaviours are valuable, gratifying,

and serve the organisational goals, “the managed” may not see it the same way.

Less can truly be more. How many employees do you know who are asking for

more management?

The hardest part of minimalism is knowing when you’re finished –whether you’re building

a house, making a painting, or offering feedback to an associate. The most difficult task for

a manager is to step back, trust, and refrain from helping and giving guidance to the team.

Dwight D. Eisenhower got it exactly right: “Motivation is the art of getting people to do what

you want them to do because they want to do it.”

What does that mean for managers today? Perhaps we should spend more time holding

up mirrors and guardrails for the team, rather than directing, micro-managing and “adding

value”. Instead, managers might first try trusting their people and experimenting with

increased autonomy. As employees gain confidence and traction, and those training wheels

start to come off, so do the manacles of “direct supervision”. Whether those shackles take the

form of process, metrics, feedback, or status reports, minimalist management can liberate the

supervised and supervisor alike and unlock unheralded levels of contribution.

On the Management Innovation Exchange (MiX) website, there are dozens of examples

illustrating the inverse relationship between “management” and genuine accomplishment:

• Demolish Management: “The option for an organisation in this era of rapid change

combined with the relentlessly higher expectations of end-users, is to disestablish

leadership and management positions, decentralising and de-layering the organisation.

Management could be reduced to only those positions that oversee functions such as the

finance and human resources (if the latter is not managed by the teams). Leadership could

be distributed throughout the teams for them to collaboratively manage as they choose.

By reducing the desire to control, with the absence of controllers, and with collaborative

direction setting open to everybody within and across teams, creativity and entrepreneurial

talent will be unleashed and organisational buy-in will increase.”

• Trust is a Business Asset of Value: “There is evidence that a high-trust organisation would

expend less resource “managing” staff than would a low-trust organisation. An element of

self-management develops.”

• In Matchfinder.com, Raina Ameer suggests a minimalist approach: “Research has

shown that command/control management is not the most effective way to lead a project

team. Employees are potentially more motivated when working in teams than when

working alone. One reason for this is the idea that people feel more accountable to fellow

team members who monitor performance more closely than a traditional supervisor.”

• In “2011 and we are still sitting in traffic?” Chris Barber touches on a similar vein:

“For managers, the ability to trust employees to be doing their jobs, while out of sight,

will be something new and it will require a thorough analysis of task identity, task

interdependence and appropriate two-way communication policies. For employees,

the characteristic of a household will vary widely. Consideration will need to be given to

factors such as interruptions associated with children in the household and the size and

layout of the household itself. In general, financial arrangements such as the cost of a

providing broadband access to a residential address, the consistency of technology, the

lack of social contact and the ability for an employee to bond with an organization will

require careful planning.”

• In “Nobody’s As Smart As Everybody: Unleashing the Quiet Genius Inside the

Organization”, Jim Lavoie says, “It’s not the leader’s job to think up all the great ideas

or to have all the answers –but to cultivate the motivation and channels for the “quiet

genius” and collective brilliance of the organisation to emerge and develop. The process

is as important as the outcome One of the ancillary benefits of the idea market is that

it provokes everyone in the company to think (on a daily basis) about how to grow the

company –and shifts the balance of work toward meaningful value-creation.”

• In “How to Tell if You are a Natural Leader”, Gary Hamel says, “Think about your role

at work. Now assume for a moment that you no longer have any positional authority

– you’re not a project leader, a department head or vice president. There’s no title on

your business card and you have no direct reports. Assume further that you have no way

of penalising those who refuse to do your bidding –you can’t fire them or cut their pay.

Given this, how much could you get done in your organization? How much of a leader

would you be if you no longer held even a tiny, tarnished sceptre of bureaucratic power?”

Minimalist artists reduce their work to the smallest number of colours, values, shapes,

lines, and textures. In 1929, Ukranian artist David Burlyuk, in the catalogue introduction

for an exhibition of John Graham’s paintings at the Dudensing Gallery in New York, wrote:

“Minimalism derives its name from the minimum of operating means.”

Can managers minimise operating means? Can managers – in the words of Mies van der

Rohe – create an impression of extreme simplicity?

In the creative world, minimalism was a reaction against the formal overkill and

pretentiousness of other forms of art. Perhaps the idea of minimalism in management,

as a reaction to formal overkill and pretentiousness of conventional management is

worthy of consideration?

Add less value. The beauty and elegance is in the austerity.

Or, to take a liberty with one of the great minimalist minds, Thoreau: “That [management]

is best which [manages] least.”

Ross Smith has worked in every corner of the software industry for over 20 years and

is currently a Director of Test at Microsoft. This article was a prize-winner in the recent

M-Prize competition on the MIX (www.managementexchange.com).

Minimalist management: when less is more continued...

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NEXT ARTICLE: IMPERIOUS INSTITUTIONS, IMPOTENT INDIVIDUALS

www.managementexchange.com/M-prize

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Imperious institutions, impotent individuals More and more of us feel that our institutions are run for the benefit of those who are leading them. Gary Hamel argues a powerful case for change.

I live a half mile from the San Andreas fault – a fact that bubbles up into my consciousness

every time some other part of the world experiences an earthquake. I sometimes wonder

whether this subterranean sense of impending disaster is at least partly responsible for

Silicon Valley’s feverish, get-it-done-yesterday work norms. Build your company quick ’cause

tomorrow we might get flattened.

Like many sorts of change, major tectonic events happen very slowly and then all of a sudden.

The earth’s wandering plates are held in check by friction for decades or centuries, and then

one day the forces of change finally break through to the surface and the planet erupts.

Social convulsions aren’t usually as abrupt as earthquakes, but they can still be startling

– particularly to those who haven’t been paying attention. Years of repressed resentments

and bottled-up frustrations can suddenly burst forth and fracture long-standing relationships.

It happened in 1773 when angry colonists dumped 300 chests of British Tea into Boston

Harbor. It happened in 1965 when determined civil rights campaigners marched from

Selma, Alabama, to the state capitol. It happened in 1989 when euphoric Germans tore

down the Berlin Wall.

And it’s happening right now along the fault line that runs between individuals and

the institutions.

Over the past few years, we have seen a fundamental breakdown in the trust that individuals

are willing to place in large organisations and in the people who run them. When asked

to rate the ethics of various professions in a recent Gallup poll, Americans ranked those

who represent big business and big government near the bottom. Only 12 per cent of

respondents rated the ethical standards of business executives as “high” or “very high.”

Members of Congress fared even worse at 9 per cent.

In the recently updated Edelman Trust Barometer, barely one-quarter of Americans said

they would regard the information they receive from a company CEO as “highly credible” or

“extremely credible.” Neither do employees place much trust in their managers. In its 2007

Global Workforce Study, Towers Watson found that only 38 per cent of employees believe

their managers communicate openly and honestly.

While some might argue this trust deficit is simply the by-product of a few high-profile

scandals, like Enron and Lehman Brothers, I believe something deeper is going on. The

tectonic plates of individual interests and institutional interests are moving in different

directions and have been for some time –at least from the perspective of “ordinary”

workers and voters.

When a politician bends the truth or a CEO breaks a promise, trust takes a beating.

Nevertheless, I think the disaffiliation of individuals and institutions is the product of

something more fundamental than a few inadvertent fibs or even the occasional Dick Fuld-

scale delinquency.

It’s not just that individuals have lost faith in the integrity of their leaders, it’s that they no

longer believe society’s most powerful institutions are acting in their interests. As I write this,

only 11 per cent of Americans believe their legislators in Washington are doing a “good job.”

And in the Towers Watson study, fewer than 4 out of 10 employees said they believed their

managers were genuinely concerned with employee wellbeing.

“ It’s not just that individuals have lost faith in the integrity of their leaders, it’s that they no longer believe society’s most powerful institutions are acting in their interests.”

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Trust is not simply a matter of truthfulness, or even constancy. It is also a matter of amity and

goodwill. We trust those who have our best interests at heart, and mistrust those who seem

deaf to our concerns. Deceit and dereliction can undermine a relationship, but so, too, can a

slow erosion of affinity and goodwill.

If legislative bodies are dominated by politicians who consistently put the interests of their

financial patrons before the interests of their constituents, or who blithely sacrifice their

country’s long-term economic security for short-term political advantage, then the institutions

of government will be mistrusted –whether or not any ethical guidelines have been breached.

Likewise, if business leaders treat employees like expendable “resources” while rewarding

themselves handsomely, or hack away at employee benefits while retaining their own lavish

perks, corporations will be viewed suspiciously –whether or not any laws have been violated.

I don’t know if institutional leaders have become less honest in recent years, but it does

seem that they have become less responsive to the interests of their citizens and employees.

The causes of this disconnect are many. In the case of government, they include a campaign

finance system that turns legislators into special interest lapdogs, gerrymandered voting

districts that shield incumbents from challengers, and a candidate selection system that

gives undue influence to party extremists. In business, the misalignment is the result of

competitive pressures that create incentives for wage arbitrage, of executive compensation

systems that discourage long-term thinking, and of authoritarian management practices that

undermine morale and frustrate contribution.

Another more insidious culprit is the centralising

impulse of both corporate and public sector

leaders. Those who have power often want more of

it –and are usually skilled at concocting arguments

for why they should have it. Who can argue

with the need for a “comprehensive solution,”

for “harmonisation,” “shared services,” “best

practices,” or “economies of scale?” Yet as power

moves away from the periphery and toward the

centre, individual influence wanes and policies

become less attuned to local circumstances.

The result: a population that feels aggrieved

and impotent.

I believe the growth of the internet has also

been contributing to the rift between individuals

and institutions. In recent years, millions of us

have rushed to take advantage of the internet’s

open and meritocratic architecture. We have

used the web to express our opinions, to expose

the misdeeds of the powerful, to build online

communities and launch new, grassroots

initiatives. And as we have done so, we have

become less tolerant of the closed, top-down

power structures we encounter in the offline world.

Whatever the cause, the data are clear: More and more of us feel that our institutions are

run for the benefit of those who are leading them. Loyal Catholics around the world feel

dishonoured by their church’s laggardly response to the cancer of sexual abuse. Tea party

activists feel disenfranchised by politicians who seem to take their orders from Beltway

lobbyists rather than hometown voters. And frontline employees feel marginalised by

managers who view them as semi-programmable robots.

Imperious institutions, impotent individuals continued...

“ We have used the web to express our opinions, to build online communities and launch new, grassroots initiatives. And as we have done so, we have become less tolerant of the closed, top-down power structures we encounter in the offline world.”

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“ Ask yourself what would you wear to work every day if there really were no constraints?”

When viewed from the bottom of the pyramid, the problem at the top is less blatant

dishonesty than imperial disregard. It’s hardly surprising, then, that populism is an

increasingly potent political force in the United States, or that job-hunting MBA students

now rank “caring about employees” almost as highly as “starting salary” when evaluating

a future employer.

As the economy has tanked, employees have become more concerned with job security.

In the 2010 edition of the Global Workforce Study, Towers Watson found that employees

are more willing than ever to trade employment perks (like training, bonuses and regular

pay hikes) for job security. Problem is, it’s unlikely that any additional security will be

forthcoming. Companies that didn’t reward fidelity and devotion in a tight labour market

are even less likely to do so in the midst of a recession, when employees have fewer

choices. Instead, it’s more likely that executives will use their new found bargaining

power to further trim employee benefits. The faltering economy may push turnover

down, but resentment is likely to go up –a psychological phenomenon familiar to

any parent whose college-educated children have been forced back home by a

wretched job market.

Whatever happens to the economy, the threads that weave individuals and institutions

together will continue to fray until leaders of all sorts rethink their fundamental

assumptions about the relationship between human beings and organisations.

So what can we do to reconnect individuals and institutions? Well, there are no easy

answers, but here is a way of thinking about it. Crack open the head of the average

manager, and you’ll find a way of thinking that puts the institution in front of, or on

top of, the individual. Represented graphically, the thinking looks like this…

Model I: INSTITUTION > INDIVIDUAL > PROFITS

The company hires employees to produce goods and services that yield profits for

shareholders. In this model, the individual is to the institution what human beings were

to the Matrix – raw material; factors of production hired to serve the institution’s goals.

In real life, human beings aren’t plugged into machines, but they’re often plugged into

roles that don’t suit them and jobs that don’t fulfil them. Usually, it is the individual who

must conform to the institution rather than the other way around. If you doubt this, ask

yourself what would you wear to work every day if there really were no constraints? What

computer would you use on the job if you could pick any one you wanted? And what task

or project would you tackle if you were free to choose?

We can, though, imagine a different model, one where the interests of the

individual take precedent:

Model II: INDIVIDUAL > ORGANISATION > IMPACT

Note here the substitution of the word “organisation” for “institution.” The latter

word implies a lot of structure and a hierarchical distribution of authority. The word

organisation is more ambiguous. It can encompass something cellular, like Alcoholics

Anonymous, or something networked, like an open source project. Here, the folks “in

charge” are servant leaders who regard their constituents as volunteers, even if they’re

paid. There is an explicit understanding that the organisation is centred on the needs

of those who support it and is run for their benefit. In this model, the organisation is the

instrument, not the individual.

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These two models form the endpoints of a continuum – but

few organisations (or institutions) inhabit the extremes. Yet

if we were able to identify a midpoint, we’d find that most

large enterprises reside on the “institution first, employee

second” side of the spectrum. I think we need to flip this

– for two reasons: First, misaligned interests undermine

competitiveness. A cynical and worried public will want to

hogtie big companies in a snarl of rules and regulations, and

as this happens, those institutions will become flexible and

responsive. Moreover, low-trust, low-engagement institutions

will fail to fully exploit the talents of their members, and

in consequence will be less innovative and resilient. This

combination of heavy-handed regulation and underleveraged

talent will result in institutions that are less competitive than

they might be.

And second, we deserve better. No one should have to work

in an organisation that feels more like a centrally planned

economy than a vibrant, open community. Nor should anyone

in a democracy feel that they are more subject than citizen.

Building human-centred organisations doesn’t imply a return to the paternalistic,

corporate welfare practices of the 19th century. Most of us don’t want to be nannied.

We understand we live in an uncertain world where no one can guarantee our financial

security. We also understand that individual interests vary, and that no single organisation

can reconcile all our competing demands. Nevertheless, we expect our institutions to be

our servants and not the reverse. This implies organisations that are built around some

simple but important principles:

> Decentralise wherever possible.

> Break big units into small units.

> Ensure transparency in decision-making.

> Make leaders more accountable to the led.

> Align rewards with contribution, rather than with power and position.

> ubstitute peer review for top-down review.

> Steadily enlarge the scope of self-determination.

But, you ask, can an institution-centric enterprise turn itself inside out? Can leaders

change their mental models? Can they be induced to surrender their prerogatives? Can

command-and-control types reinvent themselves as mobilise-and-mentor types? And can

all this happen without undermining operational effectiveness? I think the answer is a

tentative “yes.” For an example of what is possible, check out my blog:

http://blogs.wsj.com/management/2010/05/27/leadership-from-the-inside-out-part-i/

Gary Hamel ([email protected]) is Visiting Professor at London Business School

and Director of the Management Lab. You can follow him on Twitter (@profhamel) and

track his latest project at www.hackmanagement.com.


“ No one should have to work in an organisation that feels more like a centrally planned economy than a vibrant, open community.”

NEXT ARTICLE: THOUGHTS ON MANAGEMENT

What makes the practice of management difficult? And are there better ways of getting work done through others? Jules Goddard offers a challenging new way of looking at these old questions.

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Thoughts on management

The heart of the managerial dilemmaManagers confront many dilemmas, the most important of which is how

to reconcile the virtues of order and disorder. For the most part, managers

persist in seeing themselves primarily as the guardians of standard processes

and the administrators of routine procedures.

Central to the standard model of management is the concept of control. It is, for

example, the central tenet of the prevailing model of performance management in business.

The dominant logic of most management models can be expressed succinctly as the setting

of targets, the design of a measurement process to track progress against these targets, and

the introduction of a reward system to mobilise and motivate those responsible for meeting

the targets. This is the control loop.

The limitations of this system are the limitations of a thermostat: it cannot examine its own

purpose or goals; it cannot stand outside its own “settings”; and therefore it cannot lead to

learning. These are the same limitations that Chris Argyris ascribes to what he calls “single-

loop learning” or “model 1 thinking”.

It is important to add a second loop that interrogates the foundations of the first loop. Let us

call this second loop the discovery method, drawing an analogy with the logic of scientific

thinking. It is based on the replacement of dogmatic thought with critical thinking. The belief

system that underpins the company’s choice of goals, measures and reward becomes the

subject of inquiry.

In times of crisis firms typically revert to centralisation and concentration of control into fewer

and fewer, more senior hands; but perhaps a more appropriate response is to loosen up and

lighten up – and, in doing so, encourage a richer conversation amongst a broader and more

diverse range of talents.

In the same vein, it is often said that, as the world becomes more volatile and unpredictable,

so the appropriate strategy is to plan more thoroughly, coordinate more tightly, and control

more frequently.

The problem arises when the resulting rigidities reduce the agility of the organisation and its

resilience in the face of turbulence.

What makes management difficult?Managed organisations create the conditions under which effective communication – and

therefore inter-personal trust - is made particularly difficult. It presents its “victims” with a

variety of dilemmas that are seemingly irreconcilable. Gregory Bateson has given the name

“double bind” to just such dilemmas. A double bind is “a situation in which no matter what a

person does, he can’t win”. It was originally put forward as an explanation of schizophrenia,

but it is increasingly seen as offering valuable insights into the complexities of everyday

communication. A double bind is the dilemma experienced by an individual receiving two

conflicting demands to which there can be no satisfactory logical response and about which

no discussion or inquiry is allowed.

Human communication is fraught with difficulty, partly because much of what is

communicated is either implied or contextual, and non-verbal cues are often critical.

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In a power structure where the consequences of confusion, misinterpretation or

disobedience are serious, the difficulties are accentuated. For example, a demand is made

by a boss of a subordinate but the demand itself is inherently impossible to fulfil because

some contextual factor forbids it. This is how Bateson defined the double bind:

• The situation involves at least two individuals (or groups), one of which can be

characterised as the “victim”. The other is a figure of authority that the victim respects.

• The double bind is experienced by the victim, not as a single troubling episode, but as a

recurring pattern of distressing experiences.

• A “primary injunction” is imposed upon the victim by his nemesis in one of two forms:

“Do X or I will punish you” or “Do not do X or I will punish you”.

• The punishment could be the withdrawal of trust or respect, the expression of anger or

disapproval, or the display of helplessness or hopelessness.

• A “secondary injunction” is imposed that conflicts with the first at a higher level of

abstraction, such as “Do what I said, but only do it because you genuinely want to do so”.

This injection may be implied rather than spoken.

• A “tertiary injunction” is imposed – often tacitly – that prevents the victim from evading

the dilemma.

The essence of a double-bind is two irreconcilable demands, each on a different logical

plane, neither of which can be ignored or avoided, which leave the victim caught on the

horns of a dilemma, so that whichever demand they seek to satisfy, the other cannot be met.

The victim’s response to such a dilemma is of the order: “I must do it, but I can’t do it”.

A Zen Buddhist Master uses the device of the koan to place the student in a double bind

that acts as a therapeutic tool of enlightenment. For example, the Master asks the student,

“Show me who you really are”. There is nothing that the student can do, and also nothing

he can not do, to be authentic and to present his true self. In this way, the student learns the

Buddhist concept of anatman (non-self).

In business, employees are presented every day with a stream of double bind injunctions

– each of them a kind of corporate koan: “You must respect me.” “Set your own goals.” “If

this were your own business, what would you do?” “Act as a leader: be yourself – with skill.”

“Be spontaneous.” “How are we doing?” “Feel free to be candid and say exactly what is on

your mind.” “Are you with us – or against us?” “Challenge orthodoxy! Break the rules! Bet

the farm!” “Put all your effort into simply being yourself.” “Give me your honest feedback.”

“Think the unthinkable.” “Just Do It!”

Thoughts on management continued...

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What inhibits managers from managing?Managers are placed in an invidious position. They are expected to compete with their peers

for promotion to the next level, whilst also being expected to be exemplary team-players,

collaborating naturally and generously with their colleagues. They are expected to be

entrepreneurs, putting their career and financial security at risk on behalf of the shareholder,

whilst also serving as model bureaucrats and corporate citizens, complying dutifully and

selflessly with every regulation and rule placed in their way. They are expected to be the

agents of the shareholders, aligning their own interests with those of the owners, whilst also

being expected to act with integrity as leaders, being true to their own values, and exercising

their own judgment. They are expected to create shareholder value, whilst also being

encouraged to balance the interests of a wide variety of other stakeholders whose claims on

the firm may be weaker and less obvious but whose ability to stir up trouble is all

too evident.

The job of the modern manager is indeed imbued with ambiguity, internal contradictions

and stressful demands. Little wonder that most managers respond to these pressures with

a degree of perfectly rational, Machiavellian cunning. Putting their own self-interest and

survival at the heart of their concerns, they typically play a clever game of appearing to

grapple “authentically” with these challenges whilst remaining very careful to do nothing that

might endanger their career or blot their copybook.

The pattern is one where executives say bold, insightful and clever things whilst enacting

rather dull, conventional and banal policies. Modern managers talk a good game. But their

deeds rarely measure up to their rhetoric. And they have every reason to behave in this way.

Any rational person with a healthy instinct for self-preservation would adopt these habits.

Managers know full well that words count for more than deeds in the modern organisation

(mesmerised as it is by the fashion for visionary goals, stretch targets, strategic plans, codes

of conduct, rules of engagement and statements of values). They know that, in the reputation

stakes, mistakes carry more weight than triumphs. They know that, faced with risk and the

possibility of error, discretion is the better part of valour. And they know that meeting internal

targets and performing well against key performance indicators will always deliver more

kudos than the creation of competitive advantage for the enterprise as a whole.

In short, the “self-protective virtues” of staying in control, reining in one’s emotions, giving

little away, being circumspect, not providing hostages to fortune, not upsetting people,

saving face and protecting others’ face are the essential skills of organisational survival.

The principle that most accurately captures the spirit of the managerial workplace is the

saying that “We dream vaguely, but we dread precisely”. Dread is a stronger driver of

executive behaviour than dreaming. But, of course, if everyone adopted these tactics then

nothing much would be achieved and the firm would suffer. The challenge is to create an

organisational context that makes it safe for people to exercise critical thinking, rather in the

manner of scientists in a lab.

Are better managers – or leaders - the solution?There is no evidence that the best companies employ the best people, or that the more

talented the employees, the more successful the firm. Jeffrey Pfeffer has observed that ordinary

people working in extraordinary organisations typically outperform extraordinary people working

in ordinary organisations; and W Edwards Deming argued convincingly that organisational

context counts for 90 per cent of performance. Yet context remains relatively unmanaged in

most companies. As with the culture of a company, context tends to be treated as a parameter,

not a variable. Managers prefer to spend their time trying to change the person rather than the

situation. They focus on “micro-managing” their people rather than “macro-managing” the

work environment.


“ The challenge is to create an organisational context that makes it safe for people to exercise critical thinking, rather in the manner of scientists in a lab.”

Likewise, in the so-called war for talent, time is invested in recruiting particularly gifted

individuals – or at least those with the appropriate “competency profile” – rather than in creating

an organisational context that engages the energies and enthusiasm of ordinary mortals.

People give of their best when their talents are fully engaged in

their work. To be absorbed in a task that draws upon all one’s

faculties is to be in a highly productive state of being. The danger

signs in an organisation are when many people are either too

stressed (the task exceeds the talent) or too bored (the talent

exceeds the task).

Disengagement, either from stress or boredom, carries a very

high cost to the organisation. The skill of fully engaging employees

in their work entails moving them from a purely instrumental

relationship with their job, or from merely a contractual

relationship with their employer, to a discretionary or voluntary

relationship – one in which their work becomes intrinsically

motivating.

Management creates economic value when it designs an

environment that earns the discretionary efforts of employees,

particularly their creativity and courage, not simply their

compliance and competency.

Peter Barvevik has argued that it is a bad organisation that requires a great leader to run

it. Peter Lynch, one of Fidelity’s most illustrious fund managers, used to look to invest in

“simple businesses that anyone could run”. Organisations that need managing brilliantly are

simply organisations that are not serving a self-evident purpose, or that are staffed with the

wrong people, or that are structured into jobs that require a high level of supervision. Where

management is necessary, a fundamental error has been made in the design of the organisation.

Generally speaking, managers are only needed because:

• people on their own can’t do their job without help and support (a problem of incompetence);

• people without close supervision would cheat on their employer (a problem of mistrust);

• the work to be done is ill-specified, the decision rights are unclear, or the customer is remote

(a problem of ambiguity).

The same doubts and reservations about managerialism also hold for the concept of leadership,

the more genteel word for management. “Stronger leadership” or “better leaders” is the

fashionable battle cry; but It should come as no surprise that most employees (those who

are regarded as in need of being led), when asked to nominate some great leaders, come up

spontaneously with the names of Alexander, Genghis Khan, Napoleon, Hitler and Stalin. Who

said cynicism was dead?

The deeper question is this: Why would a business ever want to employ someone who needed

to be managed or led? And why would a self-respecting individual ever want to apply for a job

that entailed being led by someone who was seeking followers?

Richard Rumelt recently suggested that, when times get tough, it’s time to dispense with the

people who need to be managed. But why wait for a recession?

Jules Goddard ([email protected]), formerly Gresham Professor of Commerce at

City University, is currently an Associate of the Management Lab at London Business

School. This article is drawn from his forthcoming book, Uncommon Sense and Common

Nonsense, co-authored with Tony Eccles and published by Profile Books.


26 | Labnotes


NEXT ARTICLE: OUT AND ABOUT WITH MLAB

Contact MLabE [email protected]

T 1-650-851-2095

Mailing Address: PO Box 620955 Woodside CA 94062

Professor Gary Hamel Co-founder and Executive Director

E [email protected]

Labnotes is published by MLab at London Business School.

Labnotes enquiries:

[email protected]

Editor

Professor Julian Birkinshaw Co-founder and Research Director

M +44 (0)7966 908 718E [email protected]

MLab is unique. It brings together some of the world’s leading business

thinkers, academics, executives, institutions and organisations.

“There are a number of ways in which organisations or individuals can

become engaged with MLab,” says research director Julian Birkinshaw.

Founding status is open to corporations and individuals who are

passionate about realising MLab’s mission. Support through a seed

money grant or a gift-in-kind allows us to publicly acknowledge your

commitment and provide you access to leading edge management

thinking and practice.

Participating partners work intimately with MLab’s internationally

renowned faculty and staff in generating a number of bold

management innovations relevant to your organisation’s goals. If

the bottleneck to sustainable competitive advantage is a lack of

management innovation then investing in MLab’s unique JAM

workshop process help address these issues.

MLab also includes research partners. As well as action research with

participating partners, MLab undertakes more traditional academic-

based research projects around a number of pre-defined challenges

directly linked to management practices. These range from how to

unleash human capability by making organisations fit for human

beings through to making innovation everyone’s job. Sponsorship of a

research topic will provide direct access to leading edge management

practice in your chosen field.

MLab also involves individual thought-leaders as partners. If you

are an inspired management innovator working in academia or

in industry join the debate on Gary Hamel’s blog at:

http://discussionleader.hbsp.com/hamel.

How to become engaged with MLab

Labnotes

The connection


Does management still matter? 22 September / 20 October 2011 – London

Does management still matter? It certainly does! And in series of five interactive online conference sessions featuring MLab co-founder Julian Birkinshaw and fellow Jossey-Bass authors Ed Lawler and Chris Worley, Thomas Davenport and Stephen Harding, and Steve Denning, you are invited to take a look at the new models and practices of managing in the today’s changing business environment. Starting on Thursday, 22 September, 2011, the four 90 minute sessions present an opportunity for you to interact and participate in a discussion with us about the challenges facing traditional management theory and practice.

The fifth session on 20 October will be a moderated discussion between all of the authors and is free to all session participants. For each session, participants will receive a copy of the author’s/presenter’s book.

For more info, visit: http://www.josseybassmanagementinstitute.com and enter discount code: JBMJB to register.

Employee-Centred Management Friday 21 October – London Business School, 6-8pm

Speakers: Anand Pillai (HCL Technologies), Henry Stewart (Happy Ltd), Julian Birkinshaw (LBS).

How could we improve the quality of management in our organisations if we designed it around the needs, motivations and concerns of our employees? At this event, Julian Birkinshaw will report on the findings of his latest research programme, Employee-Centred Management, and we will hear from two executives who are experimenting with ambitious ways to make their organisations more employee-centric.

Attendance is free. Please contact Holly Parker ([email protected]) to register.

Out and about with MLab

If you would like to know more or have general enquiries about any MLab events please visit the MLab website or contact:

Felicia Collins - [email protected] or

Julian Birkinshaw - [email protected]

Upcoming events

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