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What role do, and should, our management systems play in protecting from, and connecting our organisations to, the volatility and uncertainty of the outside world?

At a recent management presentation I suggested that the way we manage is designed to absorb friction.  The friction between the complex, uncertain, outside world, and the stability and persistent operation of our organisations.  Let me explain.

The challenge of converting strategy into performance is neatly summed up by one of my favourite writers on Strategy, Henry Mintzberg… He says…

“Strategy formulation is the interplay between a dynamic environment and a bureaucratic organisation – with leadership mitigating between the two.”

Mintzberg is referring to strategy formulation and leadership as mitigating components between the dynamic, volatile outside world and the more stable structured organisation.

I think that what sits between them is not only strategy formulation and leadership.  I think the choice, design and operation of the organisation’s whole system of management is what sits between the outside world and the organisation.

Three touching circles

For me this helps us to think of three interacting circles….

  • On the left – The complex, uncertain, changing environment
    • economic change – credit crisis
    • Structural changes in our industries,
    • The emergence of China: either as the sleeping giant awakening or the masters of the long play?
    • Legislation & government policy making
    • Changing competition  and new technologies
Think of this left hand circle/wheel spinning, wobbling, changing direction….
  • On the right –  the processes and stability in our organisations
    • In our organisations we like stability: policies, practices, procedures, processes,
    • We are most efficient and effective when our business processes are stable, people come into work knowing what they are doing today and our customers get a predictable, regular service.
    • This is where our people operate, protected from the external environment.

      Sparks flying

      Sparks flying

Think of this right hand circle as a stable stationary circle
  • In the middle: Between these we have a third wheel  friction where heat builds up – sparks start to fly off.  Trying to be turned by one wheel and held stationary by the other.

This middle wheel, Mintzberg’s answer to the friction between them, as strategy moved from the outside inwards, is leadership.  Leaders create the environment for strategy and change to occur.

I believe this friction is also absorbed by how we manage….. The whole system and philosophy of management that we adopt.

How we manage is determined by what we believe about how we should manage, and therefore how we choose our systems of management and how we choose to manage our organisation.

Management processes absorb that friction which builds up heat

Our solution has been to create management practices and management processes that absorb that change, friction and heat, by being relatively static themselves.   Using top down, one off strategy.  Isolating the organisation from change.  In effect, allowing pressure to build up on the outside that gets released every so often as the management practices allow the changing environment to filter through.

We do this in part by having annual management processes. These say, “Lets check the outside world every so often, decide what to do, and get on with it.  We can ignore what is happening in the  outside world for a while”.)

  • We tend to have annual strategy followed by implementation over a year
  • We tend to set budgets and targets over a year…
  • Our performance management of individuals often gets done annually
We see the problems this causes:  our management processes performance plans become out-dated, budgets no longer relevant, targets off target.  In fact we spend time managing this buffer which costs is money.
We also see it in sudden changes to the organisation.  As a change is passed through the stationery wheel suddenly has to accelerate and then stop again to catch up with the external world and yet regain some stability and consistency.
We feel it  in a build up of heat between the organisation and the environment.  Change putting pressure on the organisation to perform  and adapt.

Our management processes need to adapt

But how can we adapt if our management processes fail to adapt?  We need management processes that do not absorb this friction, but release it slowly.

But we need…

  • More sensitive, adaptable, more responsive (Perhaps even simpler) ways of managing, that help us keep business strategy delivering operational performance.
  • The answer is yes – we are seeing this in the recognition that strategy is an emergent process, and the introduction of continuous forecasting and rolling budgets.

This for me is the route the managers I see are taking.  They are adopting new ways of thinking as managers.  They are using fresh, new, even innovative, management processes and practices.

Approaches (such as fourth generation balanced scorecards) allow organisations to be more adaptable, flexible and responsive.  They allow the management system and the processes and procedures to adapt and rotate, to some degree, in order to release the friction that builds up.  They are helping their organisations to become more adaptable and responsive.