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Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique Diálogo CFO 18/19 de Mayo 2009 Bye-Bye Management! Why management is dispensable and how leadership for high performance really works Gisma, Hannover, 06.02.2012
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Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

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Slides from keynote presentation at GISMA, Hannover/Germany, on 6 February 2012. Oranized by Annegret Zurawski, GISMA
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Page 1: Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009

Bye-Bye Management! Why management is dispensable and how leadership for high performance really works

Gisma, Hannover, 06.02.2012

Page 2: Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009

Page 3: Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

90% Peter Drucker

Page 4: Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009

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McKinsey

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Industrial age ends: ”Supplies have the power“, Evolution of mass markets: Taylorism as the superior model

Characteristics •  Incremental change •  Long life cycles •  Stable prices •  Loyal customers •  Choosy employers •  „Managed“ results

Dynamics and

complexity

1890 1980 1990

low

high

2000 2010 2020 2030

1.  Discontinuous change 2.  Short life cycles 3.  Constant pressure on prices 4.  Less loyal customers 5.  Choosy employees 6.  Transparency, societal pressure

  High financial expectations

Knowledge economy advances: ”Customers have the power“,

strong competition, individualized demand: decentralized and adaptive model is superior!

Competitive success factors (CSF) - Fast response - Innovation - Operational excellence - Customer intimacy - Great place to work -  Effective governance -  Sustained superior value creation/fin.perf.

Characteristics

Most organizations still use a management model that was designed for efficiency, while the problem today is complexity.

Now, all these factors are equally important!

Here, only efficiency mattered, really!

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“command and control“

• Too centralized • Too inward-looking • Too little customer-oriented • Too bureaucratic • Too much focused on control • Too functionally divided • Too slow and time-consuming • Too de-motivating • …

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One cannot talk sensibly about leadership, or people management, nor design decent management processes, unless we clarify beforehand our beliefs with regards to what people in organizations are like.

We have to arrive at a shared understanding of human nature and of the consequences of that for our organizations.

Niels Pflaeging, Leading with Flexible Targets

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vs. Theory Y

Douglas McGregor

Theory X

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Theory X Theory Y

People need to work and want to take an interest in it. Under right conditions, they can enjoy it.

People will direct themselves towards a target that they accept.

People will seek and accept responsibility, under the right conditions.

Under the right conditions, people are motivated by the desire to realize their own potential.

Creativity and ingenuity are widely distributed and grossly underused.

People dislike work, find it boring, and will avoid it if they can.

People must be forced or bribed to make the right effort. People would rather be directed than accept responsibility, (which they avoid).

People are motivated mainly by money and fears about their job security.

Most people have little creativity - except when it comes to getting round rules.

Source: Douglas McGregor, ‘The Human Side of Enterprise’, 1960

Attitude

Direction

Responsibility

Creativity

Motivation

Page 13: Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by Niels Pflaeging at GISMA (Hannover/D)

Niels Pflaeging BBTN Associate & Presidente MetaManagement Group Econique – Diálogo CFO 18/19 de Mayo 2009

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Theory X Theory Y

People need to work and want to take an interest in it. Under right conditions, they can enjoy it.

People will direct themselves towards a target that they accept.

People will seek and accept responsibility, under the right conditions.

Under the right conditions, people are motivated by the desire to realize their own potential.

Creativity and ingenuity are widely distributed and grossly underused.

People dislike work, find it boring, and will avoid it if they can.

People must be forced or bribed to make the right effort. People would rather be directed than accept responsibility, (which they avoid).

People are motivated mainly by money and fears about their job security.

Most people have little creativity - except when it comes to getting round rules.

Source: Douglas McGregor, ‘The Human Side of Enterprise’, 1960

Attitude

Direction

Responsibility

Creativity

Motivation ?

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Vortrag: Niels Pfläging

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Assessment Center

Meritocracy

Time-based work contracts

Control of work hours

Job descriptions

Competence profiling

Motivation/incentives

Individual targets

Performance Appraisals

Salary ranges

Training budgets Personnel Development

Org charts

Target negotiation

Absenteeism management

Personnel cost

Suggestion Schemes Knowledge management

Career plans/paths

Extra hours

Bonuses

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The BetaCodex: The 12 new laws of Leadership

§1 Freedom to act Connectedness not Dependency

§2 Responsibility Cells not Departments

§3 Governance Leadership not Management

§4 Performance climate Result culture not Duty fulfillment

§5 Success Fit not Maximization §6 Transparency Intelligence flow not Power accumulation

§7 Orientation Relative Targets not Top-down prescription

§8 Recognition Sharing not Incentives

§9 Mental presence Preparedness not Planning

§10 Decision-making Consequence not Bureaucracy §11 Resource usage Purpose-driven not Status-oriented

§12 Coordination Market dynamics not Commands

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Henry Mintzberg Gary Hamel Jeremy Hope Michael Hammer Thomas Johnson Charles Horngren …

Stafford Beer Margareth Wheatley Niklas Luhmann W. Edwards Deming Kevin Kelly Ross Ashby Joseph Bragdon …

Douglas McGregor Chris Argyris Jeffrey Pfeffer Reinhard Sprenger Stephen Covey Howard Gardner Viktor Frankl …

Peter Drucker Tom Peters Charles Handy John Kotter Peter Senge Thomas Davenport Peter Block …

Complexity Theories

Social Sciences & HR

Leadership & Change

Strategy & Performance Management

Industry

Retail

Services

Government & NGOs ?

Sciences: Thought leaders (selected)

Practice: Industry leaders

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Industry

Retail

Services

Governments & NGOs

Practice: Industry leaders

(selected)

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^

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Periphery

Center

Information

Decision

Impulse

Command

Reaction Centralist command and control “collapses“ in increasingly complex

environments

Quelle: Gerhard Wohland

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on the model,

The BetaCodex: Thinking and working

in the model.

not

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Foundation Several decades old Time scale: organization's age

Low degree of decentralization/ empowerment

Differentiation phase

Stagnation within the tayloristic model

Integration phase

High degree of decentralization/ empowerment

Sustaining and deepening of the decentralized model, through generations

Transformation through radical decentralization of decision-making

Pioneering phase

Bureaucratization through growing hierarchy and functional differentiation

Evolution within the decentralized model (culture of empowerment and trust)

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 26

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Eine Konsequenz aus dem Kodex.

Planning. Don´t

Companies. Need.

Period.

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 28

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 29 29

Management control cycle

Budget

Strategy

Strategic learning cycle

Annual plan

Control

Management processes in command and control organizations are “straight jackets”

Fixed Performance Contract

“Fixed” performance contract •  Period [Fixed]

•  Targets [Fixed]

•  Compensation [Fixed]

•  Plan [Fixed]

•  Resources [Fixed]

•  Coordination [Fixed]

•  Control [Fixed]

•  Agreed through [Negotiation]

•  Signed by: [Manager/Director]

Source: BBRT

Tayloristic management works like this: As centralistic-burocratic hierarchies, held together through a regime of fixed performance contracts!

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 31

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“I will prepare myself and my time must come.”

Abraham Lincoln

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The notion of dividing an organization into functions, and then departments, is fundamentally flawed.

But what is the alternative?

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 35

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 38

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 39

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The blue pill: Fixed, negotiated targets

Most important competitor

(28%)

Market (25%)

Plan (15%)

Actual (21%)

Target: absolute ROCE in % (here: 15%)

[expected market Ø: 13%]

Plan

Comparison: Plan-Actual

Actual

•  Interpretation within the plan-actual-comparison: Plan was outperformed by 6 percentage points > positive interpretation •  Better ROCE of the market average and the most important competitor remain unnoticed!

The red pill: Relative, self-adjusting targets

Target: relative ROCE in % (to market)

Most important competitor

(28%)

Market (25%)

Target: „ROCE in % better than market average”

Actual (21%)

•  Interpretation within actual-actual compa-rison: Performance was 4 percentage points below competition! > negative interpretation •  Absolute assumptions at the moment of planning don´t matter. •  Targets always remain updated and relevant!

[independent from expected

market Ø]

Target Actual

Comparison: Market-Actual

Source: Niels Pfläging

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 43

The case of a radically decentralized organization: Handelsbanken – an extraordinary leadership philosophy

ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share

  Consistently – over a period of 30 years – one of the most successful banks in Europe, measured by almost all key performance indicators (e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …)

The most important objective within Handelsbanken Group: “Higher Return on Equity than the average of comparable banks in the Nordic region and Europe.”

Made real through:

•  Radical decentralization, which in turn leads to…

•  Best customer service •  Lowest cost

Alexander V Dokukin

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 44

Customers

600 branch managers (Profit Centers)

12 regional managers

(Invest Centers)

CEO, product firms, treasury, IT etc.

Fast, open information systems

Governance and transparency

Framework for decision making with clear values, limits and relative targets, plus transparency

Freedom and capability to act

“Winning“ culture, combined with the freedom and ability to act

Customer intimacy A large network of self-managed teams with full responsibility for

customer results

Principles

How “radical decentralization“ is being reflected in the company´s organizational structure and decision-making

Leads to maximum customer satisfaction!

Source: BBRT

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 45

Relative target definition through “league tables“ (rankings) – instead of planned, fixed targets and internal negotiation

Bank to bank Return on Equity (RoE)

1.  Bank D 31%

2.  Bank J 24%

3.  Bank I 20%

4.  Bank B 18%

5.  Bank E 15%

6.  Bank F 13%

7.  Bank C 12%

8.  Bank H 10%

9.  Bank G 8%

10.  Bank A (2%)

Region to region Return on Assets(RoA)etc.

1.  Region A 38% 2.  Region C 27% 3.  Region H 20% 4.  Region B 17% 5.  Region F 15% 6.  Region E 12% 7.  Region J 10% 8.  Region I 7% 9.  Region G 6% 10.  Region D (5%)

Branch to branch Cost/income ratio etc.

1.  Branch J 28% 2.  Branch D 32% 3.  Branch E 37% 4.  Branch A 39% 5.  Branch I 41% 6.  Branch F 45% 7.  Branch C 54% 8.  Branch G 65% 9.  Branch H 72% 10.  Branch B 87%

Leads to lowest operational cost!

Relative targets and relative compensation

Continuous preparation/ social control

“On demand“ flow of resources/

dynamic coordination

Principles

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 46

Headquarters/ Region

Branches acquire resources through internal markets

Flexible coordination and resources “on demand“ - instead of allocations and budgets

Customer demand

Branches observe customer demand

Resources (IT, HR etc.)

Branches decide over necessary resource levels

Branch

Branches alone are responsible for efficient

use of resources

Leads to eradicating and avoiding waste!

Source: BBRT

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 47

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Variable area “Ceiling”

Bonus hurdle

100%: target

80% of target

120% of target

Base salary

Performance as % of target realization

Salary/ bonus

Common practice: „Pay for performance“ compensation profile with fixed performance contract: Creates maniuplation incentive in any situation!

Bonus limit

Reduction incentive: Lower result even more

Reduction incentive: postpone results to next period

Maximization incentive: Anticipate

results

Actual result #2

Actual result #1

Actual result #3

Performance in relative evaluation

Salary/ bonus

A better model: Result oriented compensation profile with relative performance contracts: No incentive to manipulation.

Linear compensation curve without breaks: variable compensation becomes decoupled from targets

Free from incentive to manipulate

Source: Michael Jensen

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1 very simple principle: Always disconnect compensation from targets. Always.

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1.  Pay people well 2.  Pay people fairly 3.  And then do everything possible to take money off peoples minds! All pay-for-performance plans violate that last precept!

Pay-for-performance is an outgrowth of behaviorism, which is focused on individual organisms, not systems - and, true to its name, looks only at behaviors, not at reasons and motives and the people who have them.

I tell Fortune 500 executives (or at least those foolish enough to ask me) that the best formula for compensation is this: Pay people well, pay them fairly, and then do everything possible to help them forget about money.

How should we reward our staff? Not at all! They are not our pets. Pay them well, respect and trust them, free them from disturbance, provide them with all available information and support to perform on the highest possible level. Alfie Kohn, Sociologist

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1 very simple principle: Never use bonuses and incentives. Apply profit sharing and/or shareholding concepts for community.

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1 very simple principle: Pay the person. Not the position. Always.

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“I don´t know if it is possible.

What I know: It is necessary.“

Tom Peters

Today we already know for sure it is possible.

And we have also learned how it can be done.

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What waiting for?

are we

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© BetaCodex Network – All rights reserved White paper – Making Performance Management Work 55

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www.betacodex.org A selection of associates:

Make it real!

Chris Catto christopher.catto@ putneybreeze.com.au Melbourne

Niels Pflaeging [email protected] nielspflaeging.com São Paulo-New York-Wiesbaden

Valérya Carvalho [email protected] Betaleadership.com São Paulo

Silke Hermann silke.hermann@ insights-group.de Wiesbaden–New York

Walter Larralde wlarralde@ on-strategy.com.mx Mexico City

Lars Vollmer [email protected] www.lars-vollmer.com Hannover/Stuttgart