Thursday, December 18, 2008

Innovative management: A conversation with Gary Hamel and Lowell Bryan – Part 2
Forward-looking executives must respond to the growing need for a new managerial model.
NOVEMBER 2007 • Joanna Barsh
This is part 2 of the interview with Hamel and Bryan.

Joanna Barsh: Let’s discuss what management innovation looks like. Gary, your book talks about experimentation as the key, and Lowell, you’ve got a number of ideas that are very, very different from what is actually going on in companies today. What really gets you excited as you start to innovate?

Lowell Bryan: What I find exciting are ideas that already exist in practice, that have been innovated over the past 10 or 15 years on a small scale, but have not been integrated together on a large scale. The necessary innovation is to adapt the specific organizational-design ideas that enable individual companies to perform better.

So it might be bringing talent or knowledge marketplaces inside a company or building formal networks or introducing dynamic management principles to a company. These are all ideas that have been tried somewhere; they just haven’t been integrated together, at scale, in very many companies.

Gary Hamel: The outlines of the 21st-century management model are already clear. Decision-making will be more peer based; the tools of creativity will be widely distributed in organizations. Ideas will compete on an equal footing. Strategies will be built from the bottom up (I agree with this BUT I believe fundamental diection must be top down). Power will be a function of competence rather than of position. In terms of the future of management, we’re at the beginning of what will be a fairly long journey. You can see some of the pieces starting to come together, but we’re not there yet.
To become inspired management innovators, today’s executives must learn how to think explicitly about the management orthodoxies that bound their thinking—the habits, dogmas, and conceits they’ve never taken the trouble to challenge. For example, many people believe that it takes a crisis to change a large organization, and when we look at the evidence this seems to be the case.

And yet it’s important to dig underneath that belief and ask, “Is this a law of physics? Is crisis-driven change the only way to change a large company, or is this reality the consequence of something we designed into our management system 100 years ago?” I would argue it’s the latter. It often takes a crisis to change an organization because in most companies the authority to set strategy and direction is highly concentrated at the top. As a consequence, a relatively small group of people at the top can hold the organization’s capacity to change hostage to their own personal willingness to adapt and to change.
So the orthodoxy is that it takes a crisis to change. OK, but in order to change that reality you have to change the distribution of power in large organizations. Some of these things are not going to happen overnight.

Richard Florida, who wrote a wonderful book called The Rise of the Creative Class,4 argues that some of the most bruising battles that will be fought over the next 15 to 20 years will pit the forces of organization against the forces of creativity. One model is not going to simply surrender to the other. To go back to Lowell’s idea about the S curve, I don’t think you shuffle your way from one S curve to the other. You have to jump.

Frederick Taylor often talked about the need for a mental revolution when he was trying to move organizations from the craft-based model to the factory model. Today we need a new mental revolution. Some companies will lead and some will follow, but we won’t be able to reinvent management for this new century without some trauma and some risk taking.

Joanna Barsh: So how should companies change as they jump to this next S curve?

Lowell Bryan: I like the notion of designing a managing concept or master plan—a master architecture, if you will—for every company. Such a master plan should lay out the big foundational elements to get your organization to work differently, including, for example, what is your fundamental metric for performance? Should it be return on capital or profit per employee?

Once you’ve designed your master plan, you can launch a series of initiatives aimed at achieving your goals. Part of this process is to stage-gate the initiatives in order to manage the risks of innovating. The thing that really stops innovation is risk. CEOs can be terrified of organizational disruption because it can put at risk a company’s ability to meet quarterly earnings, which in turn is often what causes CEOs to lose their jobs.
So part of what you need is a bridge so that they can be innovative but also keep their jobs.
I think if you take the principles of private equity, venture capital, and R&D and bring them inside the company to stage-gate your investments in organizational innovation, you can first learn what works and then scale it, without taking excessive risk (This is why we preach the importance of process like Options Management -- manage the cost of failure, not the rate).None of us are smart enough to see in advance the ultimate answer, because the real answer lies in discovering the operating detail to make new ideas work in practice. You can see the broad directions, but you can’t see how it’s going to really work. You can’t even understand the secondary and third-level consequences of the design decisions you make. Those have to be discovered through trial and error.

Gary Hamel: When it comes to reinventing management, you must have the courage to set seemingly aggressive objectives—like GE’s goal of growing at twice the rate of GDP, net of acquisitions. But the actual work of reengineering our musty old management practices will be more evolutionary than revolutionary. You don’t take a large, complicated company and tear up all the track at once. To do so would expose a company to an intolerable level of operational risk. Yet companies must become as purposefully and creatively experimental in thinking about their management systems and processes as they already are in thinking about R&D or new-product development.

Joanna Barsh: Who in companies should spawn that portfolio of experiments that Lowell was referring to?

Gary Hamel: The folks who are responsible for the big management processes: the executive vice president for human resources, the CFO, the director of planning, and so on.

Lowell Bryan: In terms of companies that are really pushing innovation and mobilizing mind power, some of the best examples are private-equity players. With private equity, you have principals who are activists, and they’re really shaking up many industries.

Joanna Barsh: OK, I’ve got the courage, I’ve got the architecture. I can’t believe that’s all a company needs.

Gary Hamel: Most of all, there is a lot of discipline and work needed to migrate from one management model to another. I don’t think it’s obvious to a lot of companies that it’s really possible to experiment with management. (!!!!!)

As in any scientific experiment, you have to set some very clear boundaries around what kind of risks you’re willing to take and then challenge people to test new ideas within the boundaries. That’s a new skill for most organizations. A lot of the inspiration will come from looking entirely outside the world of large organizations and management—and understanding how experimentation is used in the sciences to engender new insights will minimize risks.

Lowell Bryan: The real opportunity that companies have today is to take control of their own destinies and begin to consciously innovate. By that I mean they need to take on strategic initiatives and organizational initiatives at the same time. The scarce resources in any company today are discretionary spending, talent, and the ability to focus. You need the ability to focus in order to be able to allocate the resources. Like it or not, in order to really create any innovation and scale it, you’ve got to deploy some resources. (We must have processes and the will to make the tough portfolio decisions that afford the budgetary head room to resource and scale these initiatives to win. This is even more critical in the times we are in whether we are talking about growth and/or cost initiatives – both require the resources to win.)How do you do that? The issue is not just raw innovation; it’s actually being able to scale the innovation through at a large company. That’s where the wealth will be created.

Gary Hamel: In this experimentation it’s critical to have what I call the voice of the user very much front and center—the individuals, throughout an organization, whose work is heavily influenced by a company’s core management processes. These people know which processes choke off innovation, impede adaptability, and frustrate employees.

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