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Decision Failure

Young Apprentice candidate, Hannah RichardsIn episode 3 of the current series of Young Apprentice, the candidate Hannah Richards lost her place in the competition because of her poor decision making in the boardroom.

In Hannah’s case, she let personal loyalties and enmities over-ride good judgement, but this is not the only reason for failed boardroom decisions.  In fact there is a whole array of decision-making traps available to us.  Let’s look at a small sample:

1. The Anchoring Trap

In a discussion at a board meeting, if the first speaker has a strong opinion, they can sway the whole tone of the debate, focusing not on what is right, but on the extent to which the first speaker is right.  This “first speaker advantage” can lead to poor decisions, when the first speaker takes an extreme position.

2. The Confirming Evidence Trap

When a Board approaches a consensus view it will rarely discuss information that conflicts with this view, focusing rather on evidence that confirms it.

3. The Sunk Cost Trap

Board members invest a lot of political and social capital in key decisions that can make those decisions hard to reverse if the situation changes or new information comes to light.  Errors can be perpetuated and good money thrown after bad.

4. The Seduction of Appearances Trap

Beautifully and eloquently presented evidence often carries more weight than more robust but less attractively presented evidence.  This is one of the reasons why PowerPoint-style presentations are a dangerous component of any board meeting.

5. The Prudence Trap

Caution is wise.  Risk is dangerous.  Uncertainty is risky.  Prudence is called for.  But risk can be managed and the status quo is also a dangerous strategy in fast-changing times.  Risk-taking is neither good nor bad, but a strategy to discuss and evaluate in the light of all options and all mitigating strategies.

Good Decision Making is an Art

… and a science too.  There are a lot of tools you can draw upon and it is also important to understand the vital role of intuition, when you are operating in complex environments, where you have substantial relevant experience.

Management Pocketbooks you Might Enjoy

The Decision-Making Pocketbook

The Decision-Making Pocketbook is filled with practical tools to support decision making.

Also try:

The Problem Solving Pocketbook

The Thinker’s Pocketbook

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Crazy Times again

FW TaylorFrederick Winslow Taylor was the first management thinker to try to analyse an organisation, test his ideas with experiments, and document the results.

Today we recognise him as the father of ‘Scientific Management’, a term coined by lawyer Louis Brandeis and used by Taylor in the title of his book, ‘The Principles of Scientific Management’.

Taylor became famous for one experiment – and at the same time, invented the ‘piece rate’ – payment per item made or task completed.

Midvale Steel Works

Taylor was working at the Midvale Steel Works in Philadelphia when he realised that factory processes could be optimised from the fairly random state he found them in. If he could find the ‘best’ way to fulfil a task, he could maximise efficiency.

The first problem he directed his attention to was the cutting of steel. At the Midvale Steel Works, Taylor tried out a whole range of experiments to find the best way to cut steel, and to shovel coal. Later, at the Bethlehem Iron Works, he took up the challenge to increase the amount of 32 inch iron bars a man could shift in a day.  He measured the rate of work before starting his experiments at 13 tons per day.  As well as suggesting alternative methods, Taylor offered ‘piece rates’ to the men.

Midvale Steel Works

The Victory of Incentives

One worker, called Henry Noll, was particularly motivated by incremental payment, because he was also building a house. Noll shifted an astonishing 47 tons of iron a day.  As a result, he got to take home 60% more in his wages: $1.85 compared to $1.15 which his fellow workers got.

The Story Shifted

Of course, Scientific Management was not the last word, and researchers like Elton Mayo – who set out to provide further evidence for Taylor’s theories – were to counter it powerfully with a radical alternative: ‘Democratic Management’.

‘The change which you and your associates are working to effect will not be mechanical but humane.’

Elton Mayo

And now we are in Crazy Times… again

One modern management thinker has done more to rail against Scientific Management than any other.  And he does so with a charisma and a showmanship that eclipses any of his peers.  Love him or hate him (and many do each), it is hard to ignore the influence of Tom Peters.

Tom PetersTom Peters has come to speak and write in demotic, didactic, explosive language that makes it hard for some to take him seriously.  Academic and dry, he is not.  So many criticise what appears to be his flippancy and glibness.  However, he has been way ahead on just about every management and organisational trend in my lifetime. [21 years? Ed]

Tom Peters is capable of solid research and a more dusty style, and has written much in that format, but his more recent works have adopted a distinct style of challenging his readers and audience to think.  He will stretch your concepts beyond breaking point and hope that, when you mend them, they have given up a measure of slack.

One of his most astonishing seminars and books was Crazy Times call for Crazy Organisations – in the mid 1990s.

Well, things are going crazy again folks.  Time to dust off some Tom Peters, and challenge today’s orthodoxy, if you want to stay ahead for tomorrow.  Here’s some classic Peters…

[youtube=http://www.youtube.com/watch?v=0UyvJgOCS1w]

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A Bigger Bite

What is management without vision and inspiration?

The sad news about Steve Jobs’ untimely death has spurred more blogs than anyone has the time to read, so a shorter than usual pocketblog and a simple observation.

A bigger bite out of Apple

Making the complex seem easy and the sophisticated, a doddle to use: this is more than talent, or skill: it’s art.

Last week, for the first time in my life, I heard a major news story first, not on the radio, not on the TV, not in the press, nor even from a colleague, friend, or acquaintance.  I heard it on Twitter.

… on an iPad.

The world is a better place for everyone who is bringing us new technology and more effective communication.  Yes there are compromises and a price to pay, but who would trade it?  Very few.

Steve Jobs brought us the Mac, Pixar, the iPod, iTunes and more.  But here’s the big one for me: without him, we may still think of a mouse only as a small mammal.  Without Steve Jobs, what would the move to touch screen mean?

This image is the landing page of the Apple website, as I write this blog.  (c) Apple 2011

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Follow-up on Deming’s System of Profound Knowledge

If you enjoyed the post earlier this week, on W Edward Deming’s System of Profound Knowledge, then you may also enjoy these two short (under 3 mins) videos on YouTube, from the Institute for Healthcare Improvement.

These explain the need for and interpretation of  the four parts of Deming’s system:

  1. Appreciation for the system
  2. Knowledge about variation
  3. Theory of knowledge
  4. Psychology

Part 1 sets out the problem of cause and effect

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Part 2 gives an example of the
four parts of Deming’s System of Profound Knowledge

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Deming's System of Profound Knowledge

I recently did three blogs about towering management thinker, Peter Drucker:

  1. The Man who Invented Management
  2. Management by Objectives
  3. R.I.P. Corporate Clone: Arise Insightful Executive

Another hugely influential management thinker and a direct contemporary of Drucker’s was W Edwards Deming.

W. Edwards Deming

imageDeming was a mathematician and Physicist, who turned to statistics and management. In so doing, he became the most influential non-Japanese thinker in within Japanese industry, and a leader in the subject of quality – arguably the founder of TQM, Total Quality Management.

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On the subject of quality, he asserted that:

When people and organizations focus primarily on quality, quality tends to increase and costs fall over time.

However, when people and organizations focus primarily on costs, costs tend to rise and quality declines over time.

Profound Knowledge

Deming and Drucker were at one on the matter of knowledge.  Both believed deeply that managers need a wide knowledge over a broad spectrum of topics.  Deming went further than Drucker, in articulating this as a fundamental principle of management.

Deming said that managers need to have a ‘system of profound knowledge’.  The layout of profound knowledge has four parts, all related to one another:

  1. Appreciation for the system that they are a part of
    (What, today, we would call ‘systems thinking’)
  2. Knowledge about variation
    What drives quality and how to measure cause and effect statistically (as we do today, with processes such as Six Sigma)
  3. Theory of knowledge
    Understanding critical thinking processes and what we can and cannot know about a system.  His most famous single contribution is popularising the ‘Deming Cycle’ (which was actually invented by Walter Shewhart).
    Plan – Do – Check – Act
  4. Psychology
    How human beings respond in different situations

Challenge

This seems to me to be an excellent syllabus for a management programme, but I wonder how many managers are really learning about all four of these elements.  This system creates a synthesis of the management thesis and antithesis of the 20th Century:

Scientific Management versus People Management

14 Points for Management

In so doing, Deming articulated his 14 Points for Management.  These, whilst many have become commonplace today, still resonate well.

  1. Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.
  2. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
  3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.
  4. End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.
  5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
  6. Institute training on the job.
  7. Institute leadership (see Point 12 and Ch. 8). The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
  8. Drive out fear, so that everyone may work effectively for the company (see Ch. 3).
  9. Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.
  10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.
  11. a. Eliminate work standards (quotas) on the factory floor. Substitute leadership.
    b. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.
  12. a. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality.
    b. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective (see Ch. 3).
  13. Institute a vigorous program of education and self-improvement.
  14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job.

Management Pocketbooks you might Enjoy

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On Competition: Five Forces

On a high shelf in my study are the books I rarely refer to.  Some turned out to be a disappointment after I bought them, but some, however, are old friends.  It’s just that I no longer need to refer to them much.

Years ago, when I was asked to develop a seminar on business strategy, three of them were my constant companion as as I thought through and planned the session.  And the first model I thought of back then features at the start of Chapter 1 of one of those books, Michael Porter’s ‘On Competition’.  This is, by the way, a hefty hardback (lovely to use).

I’ve been re-reading parts of it in preparation for a new seminar: ‘the Three Hour MBA’.

Michael Porter

Michael PorterThe same model appears in the delightfully neat ‘Strategy Pocketbook’ by Neil Russell-Jones.  In it, Jones describes Porter as ‘one of the most influential strategic thinkers and writers’ and his classic book ‘Competitive Strategy’ is required reading on just about every MBA course.

 

Porter’s Five Forces

Not surprisingly, Michael Porter starts his book (which collects a dozen or so of his best articles) with the model that bears his name: Porter’s Five Forces.

Porter's Five Forces that govern competition

Porter analyses the basis of the power behind each of these five forces, and the barriers to entry of new players or substitute products.  The model forms a basis for developing a strategy that positions your company and influences the forces around it.

Three Strategies

Porter suggests three generic business strategies to position your company to take advantage of your competitive environment.

Porter's Three Generic Business Strategies

Systems Thinking

Perhaps Porter’s model is showing its age.  In the 1980s, the world seemed a simpler place.  Now, we understand far better, how inter-connected things are.  Suppliers are dealing directly with customers and business are making ever-more complex alliances.  How does access to capital (the last couple of years worth of headline news) affect competitive forces, and what about other resources, like people and energy?  And what are the affects the forces of social responsibility and regulation?

So here’s the deal

Porter’s Five Forces is an entry level strategy tool.  It is a valuable insight into the workings of a competitive market and a great starting place.  But do consider the lessons of Richard Rumelt, who argues that a good strategy starts from a robust understanding of the situation, with which this model can help, but needs much more in addition.

Some Management Pocketbooks you might like.

The Strategy Pocketbook

Neil Russell-Jones’ Strategy Pocketbook is stuffed full of handy tips and strategy planning tools, including Porter’s Five Forces and a ‘competitive intensity’ tool that is based on it.  It also has lots of other valuable tools and models.

 

Also take a look at:

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R.I.P. Corporate Clone: Arise Insightful Executive

This is the third in my Triptych of blogs about the work of Peter Drucker.  The first two were about Drucker, himself, and about Management by Objectives.  This one is about another concept he started to develop in his 1954 book,The Practice of Management.

The Man who Invented Management

Management by Objectives

The Knowledge Worker

Drucker first coined this term in his 1959 book, Landmarks of Tomorrow, saying that:

‘management’s new role is to
make knowledge more productive’

In his earlier book, however, he had started to see the manager’s role as understanding, interpreting and making decisions about the information they can access.

But it was two later works that crystallised his thinking and made him the clear progenitor of how we now interpret the term.

The Effective Executive (1966)

In The Effective Executive, Drucker argues that knowledge workers are executive in that they use knowledge to effect (or execute) changes.  He identifies five habits of an effective executive and, in passing, I note that he used the chapter title ‘First things First’ 23 years before Stephen Covey did, when he used it as one of his seven habits.  Executives must:

  1. know how their time is being spent.
  2. on results rather than the work.
  3. build on strengths first, and then give attention to weaknesses.
  4. focus on the key areas where superior performance will produce outstanding results.
  5. make effective decisions.

The Age of Discontinuity (1969)

Peter F DruckerThe Age of Discontinuity’ is the book where Drucker really develops the concept of the knowledge worker, as a breed of thoughtful, intelligent executive, every bit as much a professional as a lawyer, engineer or teacher.  They are paid to acquire and apply knowledge, make informed judgements and take responsibility for leadership.

Dull, conforming corporate clones would thenceforth be no longer needed.  Instead, knowledge will be the source of economic power – all of which came 20 years before Sir Tim Berners-Lee made his first formal proposal for what is now the World-wide Web.

Subsequent Thinking

From the early 1990s, management thinkers and futurists seized upon the concept of the knowledge worker and have spun theories, models and predictions out of it.  Indeed, this coincided with the arrival of Generation X in the workplace.  Drucker too, continued writing about the phenomenon, notably in his 1992 book, ‘Managing for the Future’;

‘The world is becoming not labour intensive,
not materials intensive, not energy intensive,
but knowledge intensive.’

We may feel energy and materials intensive in a world that seems to be running out of each, but despite being far from running out of knowledge (take a look at the fantastic web info-graphic below) there is absolutely no doubt that the world is becoming more and more knowledge intensive.

State of the Internet 2011
Created by: OnlineSchools.org

Management Pocketbooks you might Enjoy

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Peter Drucker: Management by Objectives

Last week, we looked at the profound influence Peter Drucker had on management.  This week, let’s look at one of his biggest contributions: Management by Objectives (MBO).

Drucker’s biographer asserts that he first heard the term while studying practices at General Motors, during the Second World War.  It certainly seems like a concept that an engineer like GM’s CEO, Alfred Sloane, would have favoured.  Indeed, in more modern times, MBO has been a main stay of corporations like the much-admired Hewlett Packard.  One of its founders, Bill Packard, said of MBO:

‘No operating policy has contributed more to Hewlett-Packard’s success ‘

He went on to describe it as ‘the antithesis of management by control. The latter refers to a tightly controlled system of management of the military type [while] Management by objectives, on the other hand, refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility.’

The MBO Cycle

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Management by Objectives is often represented as a cycle with five stages:

  1. Review the organisational context.  This is often seen as the weak point of MBO, as this is sometimes poorly understood.  Drucker, himself, has said: ‘Management by objectives works if you know the objectives: 90% of the time you don’t.’
  2. Reflect the organisation’s objectives in those you set to your team members.  Within the context of the objectives they are set, staff become self-directing, hence Packard’s distinction between MBO and control.
  3. Monitor people’s performance against the objectives you have set, and give regular, effective feedback.  Ideally, provide rapid feedback mechanisms, so that each staff member can assess their performance constantly.
  4. Assess performance against objectives, and then be sure to…
  5. Recognise and reward good performance.

‘What gets Measured, gets Managed’

This is another critique of MBO: if you measure the wrong thing, people will manage their performance to achieve it.  Drucker, as ever, was more subtle than simple descriptions of his ideas suggest and so was ahead of us here.  He noted that employees need four powers to do their jobs well:

  1. the freedom to challenge everything
  2. regular training and development
  3. the ability to achieve the objectives they are set, and see the results
  4. understanding of their organisation’s real purpose
This last means that managers and employees can set objectives that lead to the right behaviours being measured – and hence managed and delivered.

The Practice of Management

In last week’s blog, I laudedThe Practice of Management’.  It was the visionary book that kick-started the management book industry.  In it, Peter Drucker identified seven tasks for the manager of tomorrow (writing in 1954).  They all seem very much of the now, except, perhaps, one, which seems a little… pedestrian: ‘manage by objectives’.

Despite its critiques and detractors, maybe we should listen to the man who also advocated, over 50 years ago, in the same book, that we:

  • devolve risk-taking and decision-making down our organisations
  • prioritise strategic thinking
  • integrate teams of diverse members
  • motivate employees, gain their commitment and participation (‘engage’ them) with quick, clear communication
  • see your organisation as a whole
  • see your organisation and its activities in a wide perspective of society

Not a Management Pocketbook

Peter Drucker, 1909-2005I have found Robert Heller’s book on Peter Drucker to be excellent and recommend it to all Pocketblog readers.

For an introduction to Drucker’s thinking, how about The Essential Drucker, and for daily inspiration, how about The Daily Drucker?

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What makes good business strategy?

The world of company strategy development is fertile ground for those of us who like management models.  The options range from simple – nay simplistic, to byzantine complexity.

However, I would argue that few of these strategic tools can ever determine a strategy for your business – what the best tools can do is give you insights into the strategic context, or help you explore the potential consequences of a possible strategic decision.

Good Strategy / Bad Strategy

In a new book, Professor Richard Rumelt of the UCLA Anderson School of Management, describes what he terms ‘bad strategy’.  He has been articulating his ideas for several years now, and you can get a five minute introduction to his ideas from the short video interview from 2008, below.

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Professor Rumelt’s ideas are simple and compelling – indeed, one of his key points is that a good strategy is, itself, simple and compelling.

A Good Strategy

In Good Strategy/Bad Strategy: The difference and why it matters, Rumelt argues that a good strategy:

  • is based on a robust diagnosis of the situation and the problem to be solved
  • offers a simple solution to a problem – ‘simple’ meaning no more complex than it needs to be: not simplistic
  • follows a clear policy framework that provides constraints for the strategy
  • allows participants to co-ordinate their actions and to create a focused outcome

A Bad Strategy

A bad strategy, on the other hand,

  • fails to address the real problem
  • sets goals but makes no attempt to articulate how to achieve them
  • has a vast array of objectives with little prioritisation
  • hides poor analysis inside jargon, buzzwords and superficial analysis

You can hear Professor Rumelt for yourself or read his article ‘The Perils of Bad Strategy’.

[youtube=http://www.youtube.com/watch?v=o4QICxDvTjw]

Good Tools

With Professor Rumelt’s warnings ringing in our ears, we need to understand some of the tools we can use to inform our robust diagnosis and clear solutions.  We’ll start taking a look at these next week…

In the meantime,

Some Management Pocketbooks you might like.

The Strategy Pocketbook

Neil Russell-Jones’ Strategy Pocketbook is stuffed full of handy tips and strategy planning tools.

Also take a look at:

The Business Planning Pocketbook

The Nurturing Innovation Pocketbook

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Does Management Performance Increase Profits?

The correlation between management performance and organisational performance is taken as an article of faith in many quarters – not least in the training and development industry.

Management Pocketbooks has a vested interest here, too.  If Pocketbook readers did not believe that reading the books and learning about management would improve their management skills and that this would improve their organisation’s performance, then Pocketbooks would become redundant.

Investors in People

Another organisation with a vested interest is the UK Commission for Employment and Skills (UKCES).  This is a non-departmental public body (NDPB) that describes its mission as being to ‘raise skill levels and drive investment, enterprise, jobs and growth.’

One of the tools they have to achieve this is the Investors in People (IiP) standard.  This is designed to improve business performance – but does it?  Like most external standards, achieving IiP accreditation is a costly and time-consuming process.

Research Evidence

Prof Mike Bourne
Prof Mike Bourne (LinkedIn)

So IiP commissioned Cranfield University Researcher Professor Mike Bourne to discover whether IiP accreditation really does return a value to businesses that invest.

To do this, Professor Bourne and his team considered two questions:

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  1. The relationship between IiP accreditation and management performance
  2. The relationship between IiP accreditation and business performance

What the team found was this:

  1. IiP improves managerial performance
  2. IiP improves the financial performance of the sponsoring firm

You can review all of the evidence in the January 2010 paper, ‘Investors in People, Managerial Capabilities and Performance’ by Professor Mike Bourne and Dr Monica Franco-Santos.  Note that this academic paper is published by Cranfield University, and not in a peer-reviewed academic journal.  So too is an earlier – far more technical paper – ‘The Impact of Investors in People on People Management Practices and Firm Performance’ (2008).

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The figure illustrates the relationships that Professor Bourne’s team report.  Notice that their research seems to show that managerial capabilities and performance do indeed drive reported performance – as measured by profits recorded in Companies House data.

So here’s the deal

One must always be sceptical about research that supports the agenda of the sponsoring organisation (IiP in this case) and where the results are not published in peer reviewed journals.  And I have not taken the time to thoroughly assess the research methodology, nor review the extensive statistical analysis.  The researchers are clear in their reports that, while they assessed IiP, it is simply one example of a ‘commitment based HR policy’.

This is to say that their research evidence shows that systematically committing to your staff improves their capabilities and performance and that these lead to measurable financial improvements in performance.

Kirkpatrick Level 4

Last week’s Pocketblog talked about Kirkpatrick’s four levels of learning.  Trainers have become adept at measuring and demonstrating levels 1 and 2: How do participants react, and what do they learn?  However, the value of training is in levels 3 and 4: How does training affect behaviour and what results can the organisation measure?

Professor Bourne’s work has shown that the linkage from level 2 to level 3 to level 4 is a genuine one, which he and his team have validated statistically.

image

This just leaves one problem:
Most trainers stop at Level 1: ‘Happy Sheets’.

Some Management Pocketbooks you might enjoy

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