Bye-bye Management! Why management is dispensable & how leadership for high performance really works today. Keynote by N

1. Bye-ByeManagement! Whymanagementisdispensable andhowleadership forhighperformance reallyworks Gisma,Hannover,06.02.2012 NielsPflaeging BBTNAssociate&PresidenteMetaManagementGroup Econique–DiálogoCFO 18/19deMayo2009

2. NielsPflaeging BBTNAssociate&PresidenteMetaManagementGroup Econique–DiálogoCFO 18/19deMayo2009

3. 90% 90% PeterDrucker

4. McKinsey NielsPflaeging BBTNAssociate&PresidenteMetaManagementGroup Econique–DiálogoCFO 18/19deMayo2009 4

6. Industrialageends: ”Supplieshavethepower“, Evolutionofmassmarkets: Taylorismasthesuperiormodel Knowledgeeconomyadvances: ”Customershavethepower“, strongcompetition,individualizeddemand: decentralizedandadaptivemodelissuperior! high Now,allthesefactors areequallyimportant! Here,onlyefficiency mattered,really! 1.  Discontinuouschange 2.  Shortlifecycles 3.  Constantpressureonprices 4.  Lessloyalcustomers 5.  Choosyemployees 6.  Transparency, societalpressure   Highfinancial expectations Competitive successfactors (CSF) -Fastresponse -Innovation -Operationalexcellence -Customerintimacy -Greatplacetowork - Effective governance - Sustainedsuperior valuecreation/fin.perf. Characteristics Dynamics and complexity Characteristics •  Incrementalchange •  Longlifecycles •  Stableprices •  Loyalcustomers •  Choosyemployers •  „Managed“results low 1890 1980 1990 2000 2010 2030 2020 Mostorganizationsstilluseamanagementmodelthatwasdesigned forefficiency,whiletheproblemtodayiscomplexity. 6

9. “commandandcontrol“ • Toocentralized • Tooinward-looking • Toolittlecustomer-oriented • Toobureaucratic • Toomuchfocusedoncontrol • Toofunctionallydivided • Tooslowandtime- consuming • Toode-motivating • … 9

10. Onecannottalksensiblyaboutleadership,orpeoplemanagement, nordesigndecentmanagementprocesses,unlessweclarify beforehandourbeliefswithregardstowhat peopleinorganizationsarelike. Wehavetoarriveatasharedunderstandingofhumannature andoftheconsequencesofthatforourorganizations. Niels Pflaeging, Leading with Flexible Targets

11. vs. Theory TheoryY Y Theory TheoryX X vs. DouglasMcGregor

12. TheoryX TheoryY Attitude Peopledislikework, finditboring, andwillavoiditiftheycan. Peopleneedtoworkandwanttotake aninterestinit.Underrightconditions, theycanenjoyit. Direction Peoplewilldirectthemselves towardsatarget thattheyaccept. Responsibility Peoplemustbeforced orbribed tomaketherighteffort. Peoplewouldratherbedirected thanacceptresponsibility, (whichtheyavoid). Peoplewillseekandaccept responsibility,undertheright conditions. Motivation Peoplearemotivatedmainly bymoney andfearsabouttheirjobsecurity. Undertherightconditions,people aremotivatedbythedesiretorealize theirownpotential. Creativity Creativityandingenuityare widelydistributed andgrosslyunderused. Mostpeoplehavelittlecreativity- exceptwhenitcomestogetting roundrules. Source:DouglasMcGregor,‘TheHumanSideofEnterprise’,1960 12

13. NielsPflaeging BBTNAssociate&PresidenteMetaManagementGroup Econique–DiálogoCFO 18/19deMayo2009

15. TheoryX TheoryY Attitude Peopledislikework, finditboring, andwillavoiditiftheycan. Peopleneedtoworkandwanttotake aninterestinit.Underrightconditions, theycanenjoyit. Direction Motivation? Peoplewilldirectthemselves towardsatarget thattheyaccept. Responsibility Peoplemustbeforced orbribed tomaketherighteffort. Peoplewouldratherbedirected thanacceptresponsibility, (whichtheyavoid). Peoplewillseekandaccept responsibility,undertheright conditions. Peoplearemotivatedmainly bymoney andfearsabouttheirjobsecurity. Undertherightconditions,people aremotivatedbythedesiretorealize theirownpotential. Creativity Creativityandingenuityare widelydistributed andgrosslyunderused. Mostpeoplehavelittlecreativity- exceptwhenitcomestogetting roundrules. Source:DouglasMcGregor,‘TheHumanSideofEnterprise’,1960 15

16. Orgcharts PerformanceAppraisals Absenteeismmanagement Extrahours Meritocracy Time-basedworkcontracts Motivation/incentives Controlofworkhours Individualtargets Targetnegotiation Jobdescriptions Careerplans/paths Salaryranges Knowledgemanagement Bonuses Competenceprofiling SuggestionSchemes Trainingbudgets Personnelcost PersonnelDevelopment 16 Vortrag:NielsPfläging AssessmentCenter

19. TheBetaCodex:The12newlawsofLeadership §1Freedomtoact §2Responsibility §3Governance §4PerformanceclimateResultculture §5Success §6Transparency §7Orientation §8Recognition §9Mentalpresence §10Decision-making §11Resourceusage §12Coordination ConnectednessnotDependency Cells Leadership notDepartments notManagement notDutyfulfillment notMaximization Fit IntelligenceflownotPoweraccumulation RelativeTargetsnotTop-downprescription Sharing notIncentives Preparedness notPlanning Consequence notBureaucracy Purpose-drivennotStatus-oriented MarketdynamicsnotCommands 19

20. Sciences: Thoughtleaders (selected) Practice: Industryleaders StaffordBeer MargarethWheatley NiklasLuhmann W.EdwardsDeming KevinKelly RossAshby JosephBragdon … &NGOs? DouglasMcGregor ChrisArgyris JeffreyPfeffer ReinhardSprenger StephenCovey HowardGardner ViktorFrankl … Complexity Theories Industry SocialSciences &HR Retail PeterDrucker TomPeters CharlesHandy JohnKotter PeterSenge ThomasDavenport PeterBlock … Leadership& Change Services Strategy& Performance Management Government HenryMintzberg GaryHamel JeremyHope MichaelHammer ThomasJohnson CharlesHorngren … 20

21. Practice: Industryleaders (selected) Industry Retail Services Governments &NGOs 21

22. ^

23. Periphery Command Center Decision Information Impulse Reaction Centralistcommandand control“collapses“in increasinglycomplex environments Quelle:GerhardWohland 23

24. TheBetaCodex: Thinkingandworking onthemodel, inthemodel. not

25. Sustainingand deepeningofthe decentralizedmodel, throughgenerations Integration phase Evolution withinthedecentralized model (cultureof empowermentandtrust) Transformation throughradical decentralizationof decision-making Differentiation phase Stagnation withinthetayloristicmodel Lowdegreeofdecentralization/ empowerment Bureaucratization throughgrowinghierarchy andfunctionaldifferentiation Pioneering phase Highdegreeofdecentralization/ empowerment Severaldecadesold Foundation Timescale:organization'sage

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27. Companies. Don´t Need.Period. Planning. EineKonsequenzausdemKodex.

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29. Managementprocessesincommandandcontrol organizationsare“straightjackets” “Fixed”performancecontract Strategy •  Period •  Targets [Fixed] [Fixed] Strategic learningcycle •  Compensation •  Plan •  Resources •  Coordination •  Control •  Agreedthrough [Fixed] Annualplan Fixed Performance Contract [Fixed] [Fixed] Budget [Fixed] [Fixed] Management controlcycle [Negotiation] •  Signedby: [Manager/Director] Control Tayloristicmanagementworkslikethis:Ascentralistic-burocratichierarchies, heldtogetherthrougharegimeoffixedperformancecontracts! Whitepaper–MakingPerformanceManagementWork Source: BBRT ©BetaCodexNetwork–Allrightsreserved 29 29

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32. “Iwillprepare myselfand mytime mustcome.” AbrahamLincoln

33. Thenotionof dividinganorganization intofunctions, andthendepartments, isfundamentallyflawed. Butwhatisthealternative?

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40. Thebluepill:Fixed,negotiatedtargets Theredpill:Relative,self-adjustingtargets Target:absoluteROCEin% (here:15%) Plan Target:relativeROCEin% (tomarket) Target Actual Actual Comparison: Market-Actual Comparison: Plan-Actual Target:„ROCE in%better thanmarket average” Most important competitor (28%) Most important competitor (28%) Market (25%) Market (25%) Actual (21%) Actual (21%) Plan (15%) [expected market Ø: 13%] [independent from expected market Ø] •  Interpretationwithinactual-actualcompa- rison:Performancewas4percentagepoints belowcompetition!>negativeinterpretation •  Absoluteassumptionsatthemomentof planningdon´tmatter. •  Targetsalwaysremainupdatedandrelevant! •  Interpretationwithintheplan-actual- comparison:Planwasoutperformedby6 percentagepoints>positiveinterpretation •  BetterROCEofthemarketaverageandthe mostimportantcompetitorremainunnoticed! Source: Niels Pfläging

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43. Thecaseofaradicallydecentralizedorganization: Handelsbanken–anextraordinaryleadershipphilosophy Themostimportantobjective withinHandelsbankenGroup: “HigherReturn on Equitythanthe averageofcomparablebanksin theNordicregionandEurope.” Maderealthrough: • Radicaldecentralization, whichinturnleadsto… • Bestcustomerservice • Lowestcost AlexanderVDokukin   Consistently–overaperiodof30years–oneofthemostsuccessfulbanksin Europe,measuredbyalmostallkeyperformanceindicators (e.g.ROE,TSR,EPS,Cost/Income,customersatisfaction,…) ROE=ReturnonEquity,TSR=TotalShareholderReturn,EPS=Earningspershare Whitepaper–MakingPerformanceManagementWork ©BetaCodexNetwork–Allrightsreserved 43

44. How“radicaldecentralization“isbeingreflectedinthe company´sorganizationalstructureanddecision-making Principles Customers Customerintimacy Alargenetworkofself-managed teamswithfullresponsibilityfor customerresults 600branchmanagers (ProfitCenters) Freedomand capabilitytoact “Winning“culture,combinedwiththe freedomandabilitytoact 12regional managers (InvestCenters) Fast,open information systems Governanceand transparency Frameworkfordecisionmakingwith clearvalues,limitsandrelative targets,plustransparency CEO, productfirms, treasury,ITetc. Leadstomaximumcustomersatisfaction! Whitepaper–MakingPerformanceManagementWork Source: BBRT ©BetaCodexNetwork–Allrightsreserved 44

45. Relativetargetdefinitionthrough“leaguetables“ (rankings) – insteadofplanned,fixedtargetsandinternalnegotiation Banktobank Return on Equity (RoE) Regiontoregion Return on Assets(RoA)etc. Principles 1.  2.  3.  4.  5.  6.  7.  8.  9.  10.  BankD BankJ BankI BankB BankE BankF BankC BankH BankG BankA 31% 24% 20% 18% 15% 13% 12% 10% 8% (2%) Branchtobranch Cost/income ratio etc. 1.  2.  3.  4.  5.  6.  7.  8.  9.  10.  RegionA RegionC RegionH RegionB RegionF RegionE RegionJ RegionI RegionG RegionD 38% 27% 20% 17% 15% 12% 10% 7% 6% (5%) Relativetargetsand relativecompensation 1.  2.  3.  4.  5.  6.  7.  8.  9.  10.  BranchJ28% BranchD32% BranchE37% BranchA39% BranchI41% BranchF45% BranchC54% BranchG65% BranchH72% BranchB87% Continuouspreparation/ socialcontrol “Ondemand“flowof resources/ dynamiccoordination Leadstolowestoperationalcost! Whitepaper–MakingPerformanceManagementWork ©BetaCodexNetwork–Allrightsreserved 45

46. Flexiblecoordinationandresources“ondemand“- insteadofallocationsandbudgets Headquarters/ Region Branchesacquireresources throughinternalmarkets Resources (IT,HRetc.) Customer demand Branch Branchesaloneare responsibleforefficient useofresources Branches decideover necessary resourcelevels Branches observe customer demand Leadstoeradicatingandavoidingwaste! Whitepaper–MakingPerformanceManagementWork Source: BBRT ©BetaCodexNetwork–Allrightsreserved 46

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48. Bonus limit Bonus hurdle Variable area “Ceiling” Commonpractice: „Payforperformance“ compensation profilewithfixed performancecontract: Createsmaniuplation incentiveinanysituation! Reduction incentive:Lower resultevenmore Maximization incentive:Anticipate results Reductionincentive: postponeresultsto nextperiod Salary/ bonus Basesalary 80% oftarget 100%: target 120% oftarget Performanceas% oftargetrealization Abettermodel:Result orientedcompensation profilewithrelative performance contracts: Noincentiveto manipulation. Linearcompensationcurvewithoutbreaks: variablecompensationbecomes decoupledfromtargets Salary/ bonus Freefrom incentivetomanipulate Actual result#1 Actual result#2 Actual result#3 Performancein relativeevaluation Source: Michael Jensen

49. 1verysimpleprinciple: Alwaysdisconnectcompensationfromtargets. Always. 49

50. Pay-for-performanceisanoutgrowthofbehaviorism,whichis focusedonindividualorganisms,notsystems-and,truetoitsname, looksonlyatbehaviors,notatreasonsandmotivesandthepeoplewho havethem. ItellFortune500executives (oratleastthosefoolishenoughtoaskme) thatthebestformulaforcompensationisthis:Paypeoplewell,paythem fairly,andthendoeverythingpossibletohelpthemforgetaboutmoney. Howshouldwerewardourstaff?Notatall!Theyarenotourpets. Paythemwell,respectandtrustthem,freethemfromdisturbance, providethemwithallavailableinformationandsupporttoperform onthehighestpossiblelevel. Alfie Kohn, Sociologist 1.  Paypeoplewell 2.  Paypeoplefairly 3.  Andthendoeverythingpossibletotakemoneyoffpeoplesminds! Allpay-for-performanceplansviolatethatlastprecept!