Manage Better

(24901) Lowell Bryan and Claudia Joyce say:

The most successful organizations of the 21st century will be better managed than their 20th century predecessors. They will remove complexity from their management structures by better distributing decision-making authority. They will also combine best practices seamlessly to create a partnership at the top rather than a dictatorship. They will also be managed dynamically so they can seize upon emerging opportunities rather than statically or rigidly.

Build a better business “backbone”

If you genuinely want enterprise-wide collaboration to occur, you first need to reduce unwanted complexity at the front lines of your business. At the present time, many organizations have an ambiguous management structure that lacks clear-cut directions about who is ultimately responsible for a decision to get made. If the management structure is too complex, it also becomes a hindrance to the organization taking action when new or novel commercial opportunities arise.

Key Pricinples for Building a Business Hierarcy

The 21st century organization requires a better business hierarchy. To build something better:

Form a well-defined central management structure or “backbone” in which decision making authority is vested and which will be held accountable for operating performance. The clear cut chain of command in a military organization is probably a good model to adopt.

• Into that business backbone place three layers only of leadership:
  • Frontline managers who have authority to set goals, define tasks, assign people and mobilize resources for their frontline workers. Frontline managers make tactical decisions and drive unit performance.
  • Senior managers who manage not only the units that report directly to them but also act as collaborators with other senior managers to add value for the entire organization. Senior managers drive new strategic initiatives and cross-firm collaboration.
  • Top managers (the CEO especially) who drives the long-term health of the enterprise by providing clear leadership and identification of the best objectives.
• Centralize any support functions if everyone needs them but that do not form one of the revenue producing activities of the firm. Let these utilities, networks or talent pools be managed separately so they can serve as a resource from which frontline managers can pull whatever they need to win in the marketplace.
• Standardize roles across the enterprise so for example a comptroller has the same job across the company and not one job for one unit and something else for another.
• Have a basic, simple and well-understood chain of command in decision-making that everyone understands.

Using Organizational Structure to Delegate Decision-Making

In a nutshell, the current ambiguous decision-making process for commercial organizations needs to be replaced with something that is more suited to the demands of the 21st century marketplace. The military works because so much authority is delegated to the frontline people who know the lay of the land. Something comparable needs to happen within companies.

Frontline managers need tactical authortiy to do what is needed. If the way ahead is unclear, they can form an ad hoc committee of their peers to make a single decision and then disband. Only when decisions exceed a pre-deignated limit should senior or top managers ever need to be involved. Distributing decision-making authority better and more evenly through a backbone structure will have the result of enhancing organizational performance as a whole.

Develop a Partnership at the Top

A business backbone management structure works well only when a firm is operating as a single entity. If there is a “silo mentality” where managers are competing with each other for resources, the business backbone concept simply won’t work.

Three Elements for Avoiding the Silo Mentality

• A powerful CEO who will provide the organization with genuine leadership and not just management input. Great CEOs have a strong sense of direction, make decisions quickly, hold people accountable and manage the pace of introducing new initiatives. To build a 21st century organization, you have to appoint a CEO who will set aspirations and direction but then be happy leaving the details to others who can be far more hands-on. The CEO has to inspire the hearts and minds of self-directed people.
• A one-firm culture: one set of management practices, standards and values that get applied in an even-handed and consistent manner across every operating unit. A common culture teamed with appropriate management protocols ensures that values are distributed right across the firm. This means talented people can work more effectively and efficiently.
• A partnership mentality in the organization’s senior management team. By organizing the top 10 or 20 people into an enterprise governance committee, you get a group that will have competence and experience in all operational requirements. The committee makes any and all decisions that exceed the authority of the frontline or senior managers.

A Governance Committee Can Reduce Turf Wars

As with most things, the key to making a partnership at the top work lies in the details. You need to develop a blueprint that details who does what and the rules by which everyone will be expected to abide. All participants need to buy in if this is to work.

Having a single governance committee for the entire firm automatically dilutes turf wars. It doesn’t, however, generally mean there will be less turnover in top management. This is not a bad thing, because new talent often injects some fresh thinking. A single governance committee does provide a means by which management protocols can be standardized across the firm. This is helpful in enabling the enterprise to be able to fully capture the many and varied benefits of the digital age, where often mutiple alternatives are technically feasible. A single committee also helps instill the firm’s values.

Employ Dynamic Management

Traditionally, most firms have had the approach that business structure follows strategy — you decide on your strategy and then you build an organization to implement that strategy. In the volatile and constantly changing marketplace of the 21st century, companies need to be more flexible so they can harness the new wealth creating strategies which will be arising all the time. In this type of environment, a new and more dynamic style of management is required.

What is Dynamic Management?

In practical terms, dynamic management means pursuing a portfolio of business activities, any of which may ultimately turn out to be the revenue engines of the future. Dynamic management has three distinct elements:

• There needs to be a disciplined search for and then staged investments in new initiatives that will hopefully generate substantial returns in the future. In other words, managers need to have a number of new business projects going at any one time. This portfolio of new business ideas will probably be at one of four different stages:
  • Stage 1: Seed Capital — where small amounts of money are being invested in trying new ideas to ascertain which opportunities make sense and which do not.
  • Stage 2: Design and Operations — where modest amounts of capital are allocated to developing a design for a new product or process that has genuine potential.
  • Stage 3: Prototype — typically involving a medium investment to get a product market ready.
  • Stage 4: Scale — where either a large investment is made in establishing production capacity or the idea is abandoned altogether.
• There must be a consistent firm-wide approach to managing the portfolio of new business ideas — all of the various initiatives need to be tracked and monitored in a consistent manner so the firm’s resources can be applied intelligently rather than frittered away on projects that are at cross purposes with each other. The portfolio needs to be managed consistently well.
• There must be an integrated process that balances the need to generate current earnings against the opportunity to invest in projects that will generate substantial long-term earnings. The necessary resource allocation trade-offs need to be managed. Deciding when and where to make these trade-offs of current earnings versus future earnings will be an ongoing challenge.

Refining Strategy as Circumstances Change

Making strategic decisions on the basis of the rise or fall of a portfolio of initiatives is the defining characteristic of dynamic management. A good management team should have around 10 to 15 projects going at any one time. They then make ongoing decisions about which new projects to add, which projects to cultivate and grow, which to scale up and which to terminate.

Using a matrix as shown below also helps with budgeting and resource allocation decisions. Many of these trade-offs will need to be debated vigorously and the top management team is the appropriate forum for these debates because only they have the big-picture perspective required. This is a flexible and evolutionary approach to actively growing the business that will be in stark contrast to the business-as-usual approach. Dynamic management is all about constantly refining an evolving strategy rather than making decrees in advance or the even riskier approach of leaving everything in the hands of the business gods.

Low Risk Level: Company possesses necessary know-how, resources are available and risks can be assessed and are reasonable.

High Risk Level: Competitors have superior assets, company is making midsize investments in order to gain familiarity and thereby lower risks

Unknown Risk Level: Chances of success are difficult to estimate, so small investments should be made to gain familiarity and hands-on experience