New Management Focus: Invest in Relationships!

Designing an organization requires making a million decisions both large (e.g. picking a strategy) and small (e.g. picking out paper for the PC printer). It is easy to get lost in the trivial instead of focusing on getting the critical elements right. In my courses, I try to present ideas and frameworks that help identify what is important. At the recent Academy of Management Conference in Montreal I came across a phrase that was new to me. In my view,  it crystallizes what managers need to do to design an organization that is able to respond to all the unexpected events that invariably occur in the life of an organization:

The person who articulated this idea is Jodi Hofer Gittel.  She has studied the practices of the fantastically successful Southwest airlines for over a decade. Gittel was asked to comment on an earlier presentation in Montreal by the former CEO of Southwest airlines, James F. Parker. Parker remarked that when he first joined Southwest as an in-house lawyer he thought that letting employees at headquarters spend days planning the annual Halloween party was a poor use of the company’s resources. But he later came to appreciate that this activity, rather being wasteful, was an efficient way to allow low-level employees practice leadership skills that could be carried over into their regular jobs.  It was also an investment into forming strong bonds among employees that would enable them to tackle other challenges together or simply help each other out when one of them ran into problem. Top down organizational design sees it the task of management to coordinate people by dividing up the work into separate well-defined roles. An organization like Southwest asks employees to figure out in part themselves how they need to coordinate their actions to get the jobs of the airline done. Investing in strong relationships is the basis for bottom up coordination. Gittel explains that such relational coordination requires three foundations:  shared knowledge, shared goals and mutual respect. Parker went on to say that Southwest was able to deal with the dramatic fall in demand after September 11, 2001, because employees had such a strong identification with the airline, and with each other, that they were willing go along with big operational changes to help save costs. At the same time, management did bear the short-term cost of not laying off employees as most other airlines did because these violate psychological contract Southwest had developed with its people over three decades.  Parker emphasized that if people feel that the company “loves” them, then they will be much more willing to accept changes that require sacrifices on the part of individuals. This idea of coordinating people by investing in developing strong relationships rings true for me when I ask myself what distinguishes organizations that are able to change their practices and respond effectively to unforeseen challenges.

As an aside: Parker reconfirmed for the evolutionary theorist in me that organizational practices at Southwest came about in large measure because of idiosyncratic constraints the airline faced in the early period rather than because an organizational designer had evaluated different options and then decided that it was a really smart idea, for example, to just fly one particular airplane type or to encourage flight attendants to crack jokes.  Many effective organizational practices emerge without foresight. The task of the manager, then, is often simply to recognize when something works and then expand the practices and making sure not to tinker with the formula for success whose causal microstructure is not fully understood by the managers themselves. Just like an as an aspiring parent, as a manager you often don’t have to understand why a practice works as long as you understand that a practice works!

You Don’t Have to Pay Employees More Than the Competition to Keep Them Happy

Returning to Chicago for the first time in three years, I went to two of my favorite restaurants. In one, Lulu’s, most of waitresses and busboys I had seen three years ago were still there. In the other, I recognized no one except for the owner. So I asked the owner of Lulu’s if he was paying his people more.  He said: “No.” I asked him a second time. He still said:  “No.” Confirming the lesson that many management professors emphasize in the context of the Southwest airline example, you don’t have to pay people more than the competition to keep them happy. Lulu’s is a fun place and the interior design is attractive, providing employees non-monetary rewards. Evidently the owner is also not getting on the nerves of his staff.  Jokingly he says in front of one of his female employees: “I cannot even get rid of the people I would like to see go.” The lady—who must have been working there for at least 8 years—interjects: “I knew you were going to say this.” The general lesson (except perhaps for Wall Street before the crash) is: You don’t need to pay people more than the competition. But the total rewards of working for you have to be more than the total rewards of working for someone else. Otherwise people will leave.

The Wrong Stuff Blog

We seem to have a built-in tendency to want to learn from successful people and pay little attention to failures. We also have a hard time admitting mistakes. In fact, what dintinguihses mature and, dare I say, clever,  indivdiuals is precisely that they can admit mistakes and learn from them.  Kathryn Schulz, who is about to publish a book on the subject, has published on Slate a number of great interviews and reflections on being wrong. The one with Alan Dershowitz is particularly interesting. If you want to start with the most recent entry, start here: The Wrong Stuff

CEO Q&A: Greg Bourke

What is your number-one tip for managing people?

Be empathetic: When you understand the issues that constrain staff from doing their job you will usually identify bigger issues in the organization.

Is there a lesson you have never forogotten?

Progress is not perfection.

From BRW, April 29-June 2, 2010, p. 12.

CEO Q&A: Lincoln Crawely

What has been your greatest regret in Business?

That I didn’t really get to know and accept my strengths and weaknesses earlier.

From BRW, April 15-21, 2010, p. 10.

Warren Buffet’s Symbolic Leadership

Watch this great advertisement staffed by employees of Geico. Warren Buffet, whose companey fully owns Geico, participates in the ad to demonstrate that he is one the many co-workers. It is funny to see the 80-year-old billionaire impersonate Axl Rose.

The New AGSM MBA (Executive) Strategic Management Year

As the director of the Strategic Management Year, I led of team of faculty to redesign the year-long program. We added many new features (live case studies, book reviews, learning diaries, self-refelection papers, peer coaching, peer evaluations, rewriting of strategy paper) and organized the year around the fundamental problems that a general manager and entrepreneur faces:

1. How do I detect and select business opportunities?
2. How do I develop business opportunities?
3. How do I grow a business?
4. How do I transform a business?

In this short video, I describe the changes that we have made.  Click on “More” to see a more detailed picture overview of all program.

Apple did not forsee the success of the application store

It is hard to forsee the future as the recent episode with Apple’s application store demonstrates.  The NY Times reports:

The App Store’s success — as much a surprise to Apple as it has been to competitors — has given rise to a new digital ecosystem. Today, hundreds of software aspirants, from individuals tinkering in their bedrooms late at night to established companies looking for lucrative new revenue streams, are jumping into the App Store fray.

When making a decision, managers often make the mistakes of only considering the potential upsides, but not the cost of downsides. Positive surprises don’t kill firms. It is the negative surprises that bring you down. 

Benefits of the Knwoledge Economy

Figure 1 from the ETH Strategy Report: Knowledge is the main engine of economic growth. A strong correlation can be observed between the Knowledge Economy Index (KEI) and GDP per capita. The KEI is calculated by the World Bank and is based on the four pillars of the Knowledge Economy framework: 1. An economic and institutional regime to provide incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship; 2. An
educated and skilled population to create, share, and use knowledge well. Click on More to see a powerful picture.

3. An efficient innovation system of firms, research centers, universities, consultants, and other organizations to tap into the growing stock of global knowledge, assimilate and adapt it to local needs, and create new technology; and 4. Information and
communication technology to facilitate the effective creation, dissemination, and processing of information. The KEI is shown in a normalized and relative value (normalized on a scale of 0 to 10 relative to other countries in the comparison group; 10= best, 0=worst). GDP is given on a purchasing power parity basis divided by population.

The Economist on Annoying Bussiness Guru and the Problems with MBA Curricula

The Economist has a wonderful new column called Schumpeter. The October 22 issue revists the shortcomings of management gurus that I highlight in my classes. The Sepember 24 column encourages business schools to teach people to be more sceptical. 

The three habits…of highly irritating management gurus

Business schools have done too little to reform themselves in the light of the credit crunch