Leadership’s #1 Challenge: Transforming Management

My fellow Forbes contributor, John Kotter, has an interesting post entitled, Corporate Culture: Whose Job Is It? He asks: who is responsible for corporate culture?

“Who raises red flags if the culture is impeding performance?  Who figures out how to change it if it is a problem, or maintain it if it is an asset?  If you ask the employees and managers of most companies, the most common answer is “the folks in HR.”  And that’s not a very good answer.  The truth is that top leadership, including the CEO, has to take responsibility if the culture is to be strong.”

Why are so few leaders taking on this responsibility? Kotter’s answer is that

“we have too many managers and not enough leaders in today’s business world.  Managers focus on timelines, budgets, organizational structures, metrics, controls, and numbers.  Leaders focus on vision, buy-in, motivation, culture, and people.  Of course management is important.  But while you may get the top job by excelling at management, you thrive in the top job by excelling leadership.  Culture is always in a leader’s job description.”

The implication seems to be that strengthening the creative culture is in the job descriptioin of leaders, but not necessarily in the job description of the manager.

Responsibilities are bifurcated. Leaders inspire people, spark change and strengthen the culture, while managers organize, control work, measure outputs and get things done. The tasks involve different skill sets and attitudes. The hope is that the roles happily complement each other.

The distinction between leaders and managers

The truth is that the division of responsibilities between managers and leaders is defunct, a relic of 20^th Century thinking. It’s a leftover from an era that viewed organizations pushing products and services at customers, of tweaking the supply chain, of parsing and manufacturing demand, with the goal of making money of shareholders. It has been called shareholder capitalism.

While this seemed to work well for much of the 20^th Century, the results in today’s different work are disastrous, as shown by a comprehensive study of some 20,000 US firms by Deloitte’s Center for the Edge.

• The rate of return on assets of US firms is one quarter of what it was in 1965.
• The life expectancy of a firm in the Fortune 500 has declined to less than 15 years and is heading towards 5 years unless something changes.
• Executive turnover is accelerating.
• The topple rate of leading firms is speeding up.
• Only one in five workers is fully engaged in his or her work: the larger the company, the lower the level of passion among the workers. 

The age of customer capitalism

The reality is that we now live in the age of customer capitalism.[1] As a result of epochal shift of power in the marketplace from seller to buyer, the customer is now in charge. Making money and corporate survival now depend not merely on satisfying customers but delighting them. To prosper, firms must offer a continuing supply of new value and deliver it sooner. The new bottom line of business becomes: is the customer delighted? It’s a fundamental shift from outputs to outcomes.

In this new world, 20^th Century management involving tight control of workers and measurement of outputs is no longer appropriate or effective. Managers now have to be helping focus everyone in the organization on the goal of delighting customers, rather than merely tweaking the supply chain and searching for efficiencies.

As a result of the transition from semi-skilled labor to knowledge work aimed at delighting clients, the role of the manager shifts from being a controller to an enabler, so as to liberate the energies and talents of those doing the work and remove impediments that are getting in the way of work. They have to be enabling workers to achieve the goal of continuing to add value to customers and get it to them sooner, rather than tightly controlling them.

Managers have to put their primary emphasis on the new bottom line of business, i.e. whether the firm is delighting its customers, not merely whether it is making money for its shareholder. They have to be measuring customer outcomes, not merely outputs.

In effect the role of management needs to be transformed.

Why should managers be different from leaders?

Why should managers be different from leaders?

The question only arises because of the supposed distinction between the roles of leaders and managers that was articulated in Abraham Zaleznik’s classic 1977 HBR article, “Managers and Leaders: Are They Different?”  

That article argued that managers have different skill sets and attitudes. Three aspects are key. First, managers focus attention on procedure and not on substance. Second, managers communicate to subordinates indirectly by signals, rather than clearly stating a position. Third, managers play for time. Amid conflicting rules and procedures, managers have no way of knowing what the right answer is. Self-protective routines are used, up and down the hierarchy.

The origin of Dilbert-style management

The insight that traditional managers act differently from genuine leaders might have led to an inquiry as to whether "focusing on procedure rather than substance" and "playing for time" were productive behaviors even in 1977. In fact, they constitute the essence of the Dilbert-style manager, whose antics are celebrated in Scott Adams’ popular cartoon. They dispirit workers, cripple innovation and frustrate customers.

Paradoxically, Zaleznik’s article led to an acceptance of those behaviors and to a bifurcation of management from leadership. The role of leaders was to inspire people to embrace change while managers were grimly grinding out disciplined execution. Leaders and managers not only had different attitudes and skill sets: inevitably they worked at cross-purposes. As much as leaders inspired employees with new ideas, managers were dispiriting them with their Dilbert-cartoon style management.

The result of the distinction between leaders and managers is an organization in conflict with itself, with leaders inspiring people doing the work, sparking change and strengthening the culture, while managers are busily undermining everything the leaders are doing by controlling work through bureaucratic processes and measuring outputs rather than outcomes.

The alternative to hierarchy and anarchy: dynamic linking

A principal reason offered today for preserving the distinction between leaders and managers  is that it is necessary to achieve disciplined execution. We don’t want chaos. So we are stuck with traditional management. It’s not pleasant or fun. But that’s the only way to run an efficient organization.

The ongoing reinvention of management shows that there is another way. One can mesh the efforts of autonomous teams of knowledge workers who have the agility to innovate and meet the shifting needs of clients while also achieving disciplined execution. It requires a set of measures that can be called “dynamic linking”. The approach began in automotive design in Japan and has been developed most fully in software development with approaches known as “Agile” or “Scrum”.

The main elements of “dynamic linking” are that (a) the work is done in short cycles; (b) the management sets the goals of work in the cycle, based on what is known about what might delight the client; (c) decisions about how the work should be carried out to achieve those goals are largely the responsibility of those doing the work; (d) progress is measured (to the extent possible) by direct client feedback.

As The Power of Pull  (2010) notes, one proceeds “by setting things up in short, consecutive waves of effort, iterations that foster deep, trust-based relationships among the participants… Knowledge begins to flow and team begins to learn, innovate and perform better and faster.… Rather than trying to specify the activities in the processes in great detail… specify what they want to come out of the process, providing more space for individual participants to experiment, improvise and innovate.”

It’s not hierarchy and it’s not anarchy. It gets the best of all worlds. It has the decisiveness and discipline of a hierarchy but without its inflexibility or its tendency to de-motivate workers and frustrate customers. It creates an agile environment that is radically more productive for the organization, more congenial to innovation, and more satisfying both for those doing the work and those for whom the work is done. The approach has been implemented for over fifteen years in organizations large and small with great success.

Managers must also be leaders

In effect, the problem in dealing with culture is not so much that we have too many 20th Century-style managers and not enough leaders.

The problem is that we still have 20th Century style managers at all. They have no place in the 21st Century organization.

In effect, in the 21st Century organization, the distinction between managers and leaders dissolves. Leaders need to be managers. Managers nee   d to be leaders.

The central challenge for both leaders and managers today is to lead the transformation of management and so generate the creative, innovative organizations that are needed for the 21^st Century.

To learn more

If you would like to learn more about the transformation of management, please join me for two days on May 12-13, 2011 in Washington DC in a workshop on “revolutionizing the world of work.” It’s all about cool, innovative and serious fun. More details here.

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[1] Roger Martin wrote about the shift from shareholder capitalism to customer capitalism in his classic HBR article Martin, R. “The Age of Customer Capitalism.” Harvard Business Review, Jan. 2010, pp. 58–65. It is also reflected in The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Professor Ranjay Gulati and my own book, The Leader’s Guide to Radical Management (Jossey-Bass 2010).

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