Reinventing Management

Julian Birkinshaw: Yes, management for me, I go to Wikipedia and Wikipedia tells us that management is getting work done through others. Now that is a very broad and very simple definition and that's the reason I like it because many people leap to a definition of management around planning and staffing and controlling and budgeting and all the kind of traditional things that many managers do. For me that actually misses the point because for me management is a social activity, it's about getting people to work together to achieve goals that they couldn't achieve on their own and it applies as much to working in a factory as it does to being the conductor of an orchestra or working in a not-for-profit. So for me getting work done through others is really where we should start our conversation about management.

Rachel Salaman: And how does that relate to leadership?

Julian Birkinshaw: So leadership for me is a process of social influence by which I simply mean a leader is somebody who attracts followers and of course, that can be followers going off in a useful direction and often indeed some leaders take people off in the wrong direction. For me leadership is about the things that you do, the traits that you have that make you worthy of being followed, so leaders have charisma, they have vision and so forth. Management is the stuff that you do that enables work to get done and it often involves getting into the nitty gritty details of a project far more than leadership.

So to give you quite a well-known example, Barack Obama the President of the US, I mean clearly he is a leader because he has a vision and he has charisma and people elected him as their leader on the basis of all that. Now he's in office frankly the stuff that allows him to get work done, that allows him to pass the Health Care Reform Bill and so forth is all about his management skills. I'm not trying to say he shouldn't be a leader as well, I'm trying to say that the set of skills that he needs to be successful in office is much more about management nowadays than about leadership. So these are two horses pulling the same cart. I'm not trying to say for a second that people should not aspire to be leaders, what I'm saying is that management and leadership are both necessary elements, if you like, of an effective executive and that we shouldn't try to pretend that one is more important than the other because frankly if either one is missing the chances are you're not going to be effective.

Rachel Salaman: But is it helpful at all to try to distinguish between leadership and management?

Julian Birkinshaw: It's helpful up to a point, that is to say it is helpful to say there are two complementary sets of things that we have to do to be successful. One is about getting a clear sense of direction and exhibiting a set of values and principles and behaviors that people want to follow. So it's useful to understand that we've got these two different complementary pieces but I absolutely do not want to get hung up on 'Is this in the management box or is this in the leadership box?' because that kind of defeats the object. For me we should be building up more of the practical stuff around what makes people successful as executive leaders. The subtitle of my book is Smarter Choices for Getting Work Done and for me that's what it's all about and so that's why I'm trying to build up the management part of the story.

Rachel Salaman: Well your book is called Reinventing Management. Why does management need reinventing in your view?

Julian Birkinshaw: So you've hinted at it already. Management as a word has become kind of sullied, it's become almost corrupted in its use. When you ask people about what management means, for a lot of people it is the leftover stuff that the leaders do not do. It's all about the narrow tasks of co-ordinating and controlling and following up on grand visions. So for me the word is not attractive, no one aspires to be a manager. No kid today at school says when I grow up I want to be a manager but they might have heard about leadership. We have very few role model managers out there, we've got many role model leaders and many role model entrepreneurs. So I think we need to reinvent the word at two levels, we need to reinvent it in terms of bringing back the essence of what good management looks like and actually remind people that there are some incredibly effective managers out there.

We also need to reinvent it at a much more, I think, practical level in terms of understanding the nature of the work that we get done and the essence of the book, as we'll get into later in the interview, is about trying to be clear on what are the dimensions of management and trying to be clear that in fact there are alternative ways of fulfilling those different activities and dimensions, it's not always about command and control and hierarchy and bureaucracy.

Rachel Salaman: So what research went into your book?

Julian Birkinshaw: I've been researching the phenomena here for about five or six years. I do quite a lot of consulting work with companies trying to help them to become more effective, more innovative, more agile. I've written case studies on about two dozen companies particularly looking at their more innovative approaches to management and then when I was at London Business School and other places to talk about these ideas. So there's a combination if you like of my research and my teaching has culminated in this book and pulls together those thoughts hopefully in a fairly coherent way.

Rachel Salaman: Well, running throughout the book is this idea of a management model.

Perhaps you could just explain that in simple terms.

Julian Birkinshaw: So we all know management as the stuff individuals do to get work done and we all know about what the elements of that are just from our day to day experience. For me though, what we're missing is a bigger picture view of what organizations do as a whole, the choices they make that enable individuals to be effective as managers and I'm calling this the management model and what I define the management model as is the set of choices that organizations make as a whole about how they co-ordinate activities and allocate resources and motivate people and set objectives. For me this is analogous to the well known concept of a business model. The business model is the choices that companies make in terms of their sources of revenues, their cost structures and so forth. Amazon.com has a very different business model to W H Smith or Barnes & Noble or other traditional retailers, that's what make Amazon different. Likewise some companies have developed over the years quite distinctive management models in terms of how they do the work of management and actually when you look closer at an investment bank compared to a manufacturing company they actually have very different management models and that's one of my big intentions with this book is to try to get the concept of a management model more clearly understood across the business world.

Rachel Salaman: Now two of the companies you mention in the book, Happy Limited and HCL Technologies, believe that the customer comes second after employees, I thought this was an intriguing approach. Can you tell us how that approach worked for those very different organizations?

Julian Birkinshaw: Yes, Happy is a small, 40 person IT training company in London founded by Henry Stewart who's quite an interesting entrepreneur. He founded the company on a particular set of management values. He believes passionately that good quality management is everything, the defining quality of a company, and he very explicitly tells his people that what he is measuring their performance on if you like is the satisfaction that the employees get out of the work which in turn if you like leads to customer satisfaction which in turn leads hopefully to financial success. He almost does not care about the financial success, what he cares about is happy employees lead to happy customers, and he gets something like an 98.7% satisfaction rating from his customers, with any sort of consequences in terms of profit becoming almost incidental frankly.

HCL Technologies is a very, very different company, it's an Indian IT services company, 40 plus thousand people. It's been around for many years but when the current Chief Executive took over, his name is Vineet Nayar, he realized that he had to do something a little bit different in order to make the company rise above the masses because of course the IT services industry is incredibly crowded. So he said as a policy I'm going to put my employees first and my customers second and he does not shy away from telling his customers that. From his point of view his job is to spoil his employees, to make his employees feel special, to make the quality of the management in that company more effective and if he does that his employees will give, again, good service to their customers and that will translate into greater success.

So rather than just talking about this, what Vineet does is he actually puts a bit of substance round it by creating ways of showing that employees matter. So one example is the feedback system he uses for his managers. He posts the results of that online for anybody to see so that if you're a good manager the world can see that. If in fact your management style is not one that people appreciate, again the world can see that and he's hoping that that transparency helps to improve the quality of management in the company. So my argument here is they're both companies in very different ways of trying to turn management into a source of competitive advantage rather than assuming competitive advantage comes from your products or your services or your technologies.

Rachel Salaman: But is it always wise to follow that philosophy that employees are more important than customers?

Julian Birkinshaw: No it's not, indeed as with all of these things a lesson or example in one context can be very dangerous if applied to another context. What in both of those companies is true, is that these are fundamentally services businesses where happy employees, engaged employees, almost by definition are likely to do a better job with customers. If what you're selling is a product or a technology it is quite certainly the case that this kind of strong relationship breaks down a little bit. You can absolutely imagine a company that if it puts its employees first would not necessarily be able to translate that into high levels of customer satisfaction or indeed high levels of profit. So I think there's an interesting principle at work here, it's called in the book 'the oblique principle' that says that often our goals are best pursued indirectly but I think one has to always be conscious of the limitations of that. If you're a manager in a company and you're thinking about applying this principle please think it through because sometimes these good ideas have unforeseeable consequences.

Rachel Salaman: Well your book sets out to challenge several established management practices by offering alternatives that might be more effective.

For example, you pit bureaucracy against what you call 'emergence' so could you explain that?

Julian Birkinshaw: Yes indeed. Bureaucracy, everyone knows the word bureaucracy. It's about the standardization and formalization of procedures. Bureaucracy has enormous benefits and indeed when the term was first developed it was very much seen as the hallmark of a professionally managed company but, as we know, the word has become corrupted in use. For us nowadays, for most people, it means procedures for their own sake. So on the one extreme I think we do see organizations that are run from standardized processes and procedures. On the other extreme, I'm using the word emergence also used in the same way in the concept of self-organization to say that it is possible for activities to be coordinated purely by individuals coming together of their free will and arranging mechanisms to do that. So many market-based processes are actually coordinated through emergence.

A beautiful example I use in the book is the metaphor of the town planning experiments done in Holland whereby they took these traditional intersections and they stripped out all of the road markings for the traffic lights and so forth in order to make the system more chaotic, more open, and rather than creating chaos in fact what happened was the pedestrians and the cyclists and the cars figured out for themselves how to find their way through this, what's now a roundabout, and they did it quicker and more efficiently and frankly with a lot less grief on all sides than in the old system whereby they had all these formal rules and markings and lights. So the metaphor is trying to say that there are many circumstances under which self organization or emergence as a principle for coordination is more effective than bureaucracy.

Rachel Salaman: So when might a manager know when they should start looking at emergence as a tool?

Julian Birkinshaw: Yes, so as a general rule my motto is less is more. You look at any large organization and the same is true of smaller organizations but to a smaller degree. Any large organization has a whole series of management processes, a new product development process, a capital allocation process, an annual budgeting process, a performance management process. All of these processes are well intentioned efforts to try to get people to do things in a coherent way. The trouble is that what happens is most people resent these things because they end up spending a lot of time conforming to a set of processes in a way that doesn't necessarily seem to help them in doing their job and I think any middle manager or indeed senior manager in a big company has felt that.

So what I encourage people to do is take a look at your processes, try to understand what the objectives behind them are and let's be very explicit on what trouble they create, what blockers they create for doing some of the other things we're trying to do, and I've seen many companies where they've taken a look at, for example, the budgeting process or the system

for expense claims or the system for accounts and other things and they've said what would happen if we removed this process altogether.

It may sound a bit far fetched but I know several companies who have basically eliminated their traditional budgeting methods and replaced it with a much leaner, much simpler system as a means of freeing up the time and expertise and engagement of their people across their company. So there's no simple answer as to when to do it but I would always start with the premise that we have more bureaucracy, we have more processes for controlling our behavior than we need and I would encourage you to look at each one in turn and say 'What is the real value added of this, can it be removed?'

Rachel Salaman: In your book you also turn your attention to decision making and you outline a range of options from hierarchical decision making to following collective wisdom. Can you share some examples of what you mean here and what you found?

Julian Birkinshaw: Yes, I mean hierarchy is again a word that we all use often as synonymous with bureaucracy but in fact it's quite different. Bureaucracy is about the processes for coordinating activities. Hierarchy is the mechanism by which we control activities through a chain of command so literally hierarchy means that I have some sort of legitimate authority over you by virtue of my position in an organization chart and hierarchy assumes that the people at the top are somehow smart, more knowledgeable, have greater expertise than the people below. They see more of the picture and that's why they have the right, as it were, to tell others what to do and decision making and resources all funnel through this system. The trouble is that whilst that works in many situations, and again I'm not trying to say we shouldn't have hierarchy, there's a place for hierarchy, but in many other situations it turns out that the crowd, the collective wisdom of the people working across the organization, is actually greater than the expertise of those at the top.

This is a phenomenon that's been around for many years. It's often best illustrated by the game show Who Wants To Be A Millionaire where the participant is allowed to phone a friend or the participant's allowed to ask the audience. Well it's turns out the audience get it right 91% of the time, the friend only gets it right about 65% of the time. Now why is that? Of course partly it's because the friend gets the difficult questions but it's also because the audience collectively has the necessary fragments of information that they require in order essentially to converge on the right answer. So any one of the audience is not as smart as the friend who's been hand picked to answer the difficult questions, but collectively they are and of course the implications of that for the way any organization works are enormous because if you're the director of a division or a unit to the extent that we actually tap into the wisdom, the collective wisdom, of the ten or a hundred people who work for us, chances are we're going to make better decisions as a result of that and I've seen several examples where senior executives have done exactly that. They've actually polled their teams on particular issues and the team has been found to come up with better solutions than the executive would have done on his or her own.

Rachel Salaman: Well in your book you suggest that managers should experiment with different models of decision making.

How would that experimentation work in practice, is it the kind of things that you just mentioned, the polling of the team?

Julian Birkinshaw: Yes, I mean I'll give you a very specific example. I met this guy at Best Buy in the US, the big electronics retailer, and the specific experiment he ran just along the lines I'm saying was 'I'm the Head of the Greeting Cards Division, I want to predict our greeting cards sales around the Christmas period because sometimes we've got that a bit wrong and it's hurt our results.' So he's got a product planning team who do that but he said he sent an e-mail round to a hundred odd people who worked in his division and said I'm going to give $50 in gift certificates to the person who guesses most accurately what our sales are going to be over the Christmas period and here's twelve months of sales data just to give you some insight into roughly where it actually went up and indeed the average score as it were from the crowd ended up being more accurate than the score from his own official team. That's just one specific example of a very simple experiment, it cost him $50 and it took him three months and that was a win for him because from then on he was using that mechanism to help him in his planning processes.

Rachel Salaman: Motivating employees is essential to good management and your book explores the difference between intrinsic and extrinsic motivation. Could you define those types of motivation perhaps with a couple of examples?

Julian Birkinshaw: Yes. There's a very old body of thinking here. Some people will have read Douglas McGregor's famous book The Human Side Of Enterprise where he distinguishes between theory X and theory X basically says employees come to work because they have to because they've got to put bread on the table and they work as long as they have to, to earn enough money and then they basically go home, versus theory Y which says employees are fundamentally and intrinsically motivated to do good work. They enjoy work and it's up to the organizations to tap into that latent enthusiasm. So I use the distinction between extrinsic rewards and intrinsic. Extrinsic reward says I am being rewarded through material incentives which basically means money but it can be a few other things around that. So the employee simply shows up to work to get money and is extrinsically rewarded. Intrinsic reward is purely from within so if I enjoy going for a walk in the country or if I enjoy playing the piano I get intrinsic motivation out of that. What that means in the workplace is many artists, many people in knowledge jobs, many senior managers, genuinely simply enjoy their work for its own sake.

Now there's a scale there from theory X on the left hand side which is where you are being motivated through purely extrinsic means and theory Y on the right hand side where you are being motivated purely through what I would call intrinsic means. There's also a bunch of stuff in the middle there so for example when you receive a promotion at work, when you receive a pat on the back for doing good work, that, if you think about it is somewhere halfway between purely extrinsic and purely intrinsic.

What I'm trying to say in the book is that first of all companies need to be more cognizant of the ways that they motivate people and many companies are still stuck in what you might call an extrinsic or theory X view of the world where it's all about money and we know full well that the more money you give someone the more they simply want more money, it becomes a self-fulfilling prophecy. The investment banks got stuck in that game and it did them a lot of damage. So I think we need to be cleverer about our use of mixed motivators and we need to use more of the stuff around intrinsic motivation, trying to make work fundamentally more interesting for its own sake.

And then the second thing I think is important to realize, and the book touches on a few of these examples in some detail, as we move to more freelance work as people who are not actually employed on permanent contracts we have to be more creative again about the ways that we encourage them to work for us and indeed what I've discovered is companies or organizations that have freelance workers, organizations that are not-for-profits, often they are far more clever about coming up with interesting new ways of incentivizing and motivating people and as a result they get much higher levels of employee engagement and worker engagement as a result.

Rachel Salaman: Your book ends with four steps that managers can take to implement a new management model in their companies. These are understanding, evaluating, envisioning and experimenting. Briefly, could you just explain how those steps might work in practice.

Julian Birkinshaw: Yes. What I'm trying to say here is, and this not just applying to the chief executive, for me this works at all levels within an organization, you as a manager are currently working with what is often a kind of subconscious view of your management model, the choices you historically made about how you get decisions made, how you motivate people and so forth. My argument is you need to first of all understand that current model and the book includes for example some little diagnostic tools to help you do that, to understand where you sit on these dimensions that I've been talking about.

Secondly you have to evaluate them, meaning you have to understand fully the pros and cons of your choices, your historical choices. That is to say bureaucracy is not all bad, bureaucracy has benefits, it has costs. Let us be clear that in the situation that you're working in that you understand what those pros and cons are. The third part then is what I'm calling envisioning which is all about saying 'What might the future look like? Can we imagine a different approach to management that would work for us within my particular context?' And hopefully the book provides some aspirational examples of some of the interesting new practices that some companies are trying.

Then the final one, experimenting, says let's not just make a wholesale change in the way that we work. Let us experiment, let us try this idea out in a small way in order to prove that it works. So just one brief example, I was working with some mid-level managers at Roche, the Swiss pharmaceutical company, and they were interested in some of these ideas and they realized of course, in the evaluating and understanding steps they said look we've got a very bureaucratic system and frankly we are getting fed up of the elements of process that prevent us from spending time on the value added activities that we want and they said what would our processes look like if we moved from what they're calling oversight, in other words somebody standing over you telling what to do, to insight meaning having a much clearer idea ourselves of what to do and rather than take on bureaucracy as a whole they said, look, bureaucracy has many manifestations, let us bite off one piece of this, and they bit off the piece around travel expense claims.

Now that might sound trivial but the fact is Roche spend $350 million a year on travel and individuals running a $20 million piece of business still have to get their manager sign off for a $4 cup of coffee, so they said take a look at that and let us come up with an alternative to a bureaucratic process whereby everything has to be signed off and they actually did an experiment whereby they took 100 managers from one division and they said your system is basically going to be the same as ever and they took 100 managers in the nextdoor division and they said from now on for the next three months you are allowed to spend whatever you like in whatever way you like on your travel. You don't have to get permission to fly to America to this meeting, just do it, but in return for that you have to put all your expense claims onto this website and you have to list exactly what you spent and why you spent it or not even why, I mean people can figure for themselves why. Over a three month period they did this experiment running the traditional system side by side with the new system and they discovered to their delight that at the end of that period not only was the new system working very well, it was costing less money to the company and with less people checking up on what they were doing. They even got some additional fringe benefits to it because suddenly people could see where everyone else was flying to and they would arrange to meet up at those destinations and travel to meetings together and so forth.

So the details perhaps don't matter here, what is important is they didn't just say bureaucracy is bad, let's complain to our chief executive. They said let's do something about it, let's have a little experiment to challenge one piece of the system and they've now started the ball rolling to get others in the same company to try to put in place changes along the same lines.

Rachel Salaman: So finally what about some smaller scale ideas that managers might be able to implement tomorrow to improve the way they work. Do you have one or two simple tips?

Julian Birkinshaw: Yes, let me just bring this all back to you as an individual manager whether you've got one person working for you, whether you've got a hundred people working for you. You are setting the tone within your organization, within your part of your organization, and it turns out that most of us actually, and I include myself in this, do a pretty terrible job of management. There's lots of evidence in the book for how individuals generally do not value their managers. Many people feel that managers destroy value rather than adding value so what would you do as an individual manager? I think you have to put yourself in the shoes of your employee and if I'm trying to simplify this and boil it down to three or four basics what do employees want. They want the space to do a good job, they do not want a manager who's peering over their shoulder. They like to be given significant problems to solve, significant pieces of work to be done and they don't want someone checking up on them every step of the way so they want space. They also want what I'm going to call transparency, they want to be told not just this is my piece of the job but they want to be given some sense of how the piece of what I'm doing fits into the big picture. They want their manager to communicate with them about what his or her job is and how the various pieces of work that are being done fit together because frankly we can always do a much better job when we understand how our piece of work fits into the big picture.

The third thing that employees like, and not every manager can grant this I admit, is choice. That is to say we like to have some sense that we're not just being slotted in and that there is some flexibility in terms of what we do perhaps not on a daily basis but on a project by project basis to the extent that you as a manager can give your employees some sense of free will in terms of what they're spending their time on, that is really helpful. So they like space, they want transparency and they want choice. I realize that you can't give all of these things all the time but these are useful kind of themes to bear in mind in your day to day dealings with your people.

Rachel Salaman: Julian Birkinshaw, thanks very much for joining us.

Julian Birkinshaw: Thank you.

Rachel Salaman: The name of Julian's book again is "Reinventing Management: Smarter Choices for Getting Work Done" and there's a website with more information, www.reinventingmanagement.com.

I'll be back in a few weeks with another Expert Interview, until then goodbye.