Market-Based Management

1. Market-Based Management Econ 640, 2006, Barry Brownstein

2. Prologue • “Given the right circumstances, from no more than dreams, determination, and liberty to try, quite ordinary people consistently do extraordinary things.”- Dee Hock founder and former CEO, Visa • What would happen if we began with the assumption that individuals in our organization are alive with infinite constructive capacity and are not problems to be solved?

3. Further Thoughts on Humility • “The greatest obstacle to discovery is not ignorance but the illusion of knowledge.”- Daniel Boorstin • “Whether you can observe a thing depends upon the theory you use.”- Einstein • Take off your “mind-forged manacles”- Blake

4. Frederick Winslow Taylor • Father of ‘Scientific Management’ (Command and Control) • Workers are less efficient if allowed discretion, initiative or spontaneity • “All possible brain power should be removed from the shop and centered in the planning department.” • “Now one of the very first requirements for a man who is able to handle pig iron is that he shall be so stupid…that he more nearly resembles in his mental make-up the ox...”

5. Command and Control Management • Management thinks, employees do • Employees are costs to be minimized • Conflict of interest exists between management and employees • Management's responsibility is to direct and control employees; creativity and entrepreneurship discouraged • Individual success dependent on "pleasing" supervisors politically • Orders are communicated downward through the hierarchy

6. Command and Control (Cont.) • Attitude of compliance often without commitment • Accumulation of power by hoarding key information • Overhead often grows excessively • Communication takes place through proper channels • Compensation is based upon title etc. rather than value added

7. Innovation is Increasingly Important • “Wealth in the new regime flows directly from innovation, not optimization; that is, wealth is not gained by perfecting the known, but by imperfectly seizing the unknown.”-Kevin Kelly • Innovation is frequently unplanned, incremental, dispersed and unpredictable.

8. To Innovate - Using Knowledge In The Firm • "It is no accident that today's most innovative and successful management techniques are those that mobilize the vast knowledge dispersed throughout organizations. Their success points to the need for an overall approach to management that continually uncovers and mobilizes this knowledge."-Gable and Ellig • “Change is not something to pursue-it happens. Increasing (organizational) intelligence is something worth pursuing -and it just doesn’t happen.” - McMaster

9. On Using Knowledge In The Firm • "It is no accident that today's most innovative and successful management techniques are those that mobilize the vast knowledge dispersed throughout organizations. Their success points to the need for an overall approach to management that continually uncovers and mobilizes this knowledge."-Gable and Ellig

10. "I reviewed my scribblings on Hayek...and ripped up my notes on Marketing Strategy with anguish, anger even disgust. Why? Nowhere in those tidy pages (presented as a primer for business students) was there even a hint of the richness, messiness and uncertainty of markets...To the contrary, the possibility of conquering markets with a sound plan and a little more market research could be found on any page." Tom Peters on Planning

11. Focus on organizational pathology Organizational chart shows entitlements, bureaucracy, hierarchy Fixed policies Standing committees Politics Focus on organizational potential Allow sources of energy and innovation to emerge Ad-hoc groups, networks, rotating leadership Education and Learning Obsolete Structures Do Not Support Innovation and Change

12. Scheduled event with “data” Strategic planning staff, committee and/or consultants. Top approves the report or recommendations. Innovative thinking is everyone’s ongoing responsibility. Whole system has input in planning process. “Plans” and implementation are flexible and evolving. Planning as an Event vs. Process

13. "To the naive mind that conceives of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order and adaptation to the unknown can be achieved more effectively by decentralizing decisions.“- Hayek • The desire to control is mutually exclusive with the goal of being inclusive and utilizing organizational intelligence. They lead to radically different approaches to managing. Cosmos and Taxis Redux

14. "It was beyond the power of reason to design an organization to deal with such complexity and beyond the reach of imagination to perceive all the conditions it would encounter.“- Dee Hock, Founding CEO, On “Growing” Visa

15. “People ask: "Where's the plan? How do we implement it?" But that's the wrong question because an organization isn't a machine that can be built according to a blueprint.” • "They (organizations) can be no more or less than the sum of the beliefs of the people drawn to them; of their character, judgment, acts and efforts." • "An organization's success has more to do with clarity of shared purpose, common principles and strength of belief in them than to assets, expertise, operating ability or management competence, important as they may be." Dee Hock On Implementation

16. Purpose and Principles • “To the direct degree that clarity of shared purpose and principles and strength of belief in them exist, constructive harmonious behavior may be induced. To the direct degree they do not exist, behavior is inevitably compelled…The alternative to shared belief in propose and principles is tyranny.”- Hock • “A clear sense of direction and compelling principles about conduct in pursuit of it are far more effective that long-term plans and detailed objectives.”- Hock

17. Freedom and Responsibility • “The most abundant, least expensive, most underutilized, and constantly abused resource in the world is human ingenuity.”- Hock • “Compelled behavior is the essence of tyranny. Induced behavior is the essence of leadership.”-Hock • “People deprived of self-organization and self-governance are inherently ungovernable.”- Hock • “I am as great to me as you are to you, and you are as great to you as I am to me, therefore, we are equal.”- Hock

18. Organizational Transformation and Individual Transformation • “Once you understand that you and your organization are inseparable (since every organization only exists in your mind) then the idea that it’s about individual change or organizational change, and that one can proceed independently of the other, is utter nonsense.” – Dee Hock

19. Managing Oneself • “The first and paramount responsibility of anyone who purports to manage is to manage self: one's own integrity, character, ethics, knowledge, wisdom, temperament, words, and acts. It is a complex, unending, incredibly difficult, oft-shunned task. We spend little time and rarely excel at management of self precisely because it is so much more difficult than prescribing and controlling the behavior of others.” - Hock

20. Managing Oneself (Cont.) • “Without management of self no one is fit for authority no matter how much they acquire, for the more authority they acquire the more dangerous they become. It is the management of self that should occupy 50 percent of our time and the best of our ability. And when we do that, the ethical, moral and spiritual elements of management are inescapable.”- Hock • “Lead yourself, lead your superiors, lead your peers, employ good people, and free them to do the same.”- Hock

21. Self-Organizing Potential is Enhanced By: • Devolving power to periphery • “Power, function and resources should be distributed to the maximum degree”- Hock • Establishing rich connections • “Equitable rights and obligations”- Hock • Enriching the values of the networks with information • “The greater the capacity to receive, store, utilize, transform, and transmit information, the more complex and diverse the entity.”- Hock

22. Create A “Source Document” - McMaster • “A set of fundamental values-to guide personal behavior.” • “ A set of strategic statements that define the business uniquely- to guide the application of resources and marketplace intentions.” • “A set of organizational design principles- to guide the flow of information and energy.”

23. Fundamental Organizational Design Principles (McMaster) • “Increase distribution of accountability, information and knowledge” • “Increase connections internally and externally.” • “Increased engagement and decrease authority.” • “Increase shared understanding.”

24. Giving up Control • “They want to know how things will turn out before they begin. They don’t want to create the conditions for solutions to emerge without being able to control what the solutions might be. They’re enmeshed in a command-and-control organization and fear how it will respond if they obey their own common sense, creativity and judgment.” - Hock