A survey of ideas, trends, people, and practices on the business horizon
GRIST
To Be a Better Leader, Give Up Authority IN CHAOTIC TIMES, an executive’s instinct may be to strive for greater efficiency by tightening control. But the truth is that relinquishing authority and giving employees considerable autonomy can boost innovation and success at knowledge firms, even during crises. Our research provides hard evidence that leaders who give in to the urge to clamp down can end up doing their companies a serious disservice.
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Although business thinkers have long proposed that companies can engage workers and stimulate innovation by abdicating control – establishing nonhierarchical teams that focus on various issues and allowing those teams to make most of the company’s decisions – guidance on implementing such a policy is lacking. So is evidence of its consequences. Indeed, companies that actually practice abdication of control are rare. Two of
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them, however, compellingly demonstrate that if it’s implemented properly, this counterintuitive idea can dramatically improve results. In response to poor financial performance in 2007, CSC Germany, a division of the $17 billion worldwide IT consulting and services firm, at first took the usual approach of increasing control and efficiency. The result was a further decline. When the division’s leaders did
Headcase Design
by A.D. Amar, Carsten Hentrich, and Vlatka Hlupic
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LEADERSHIP
the opposite – relaxed control and gave employees the freedom to do things as they saw fit – the outcome was resounding success. Responding to an initiative by its parent company to rethink management practices, CSC Germany experimented with a no-control approach within the 60-employee Enterprise Content Management (ECM) unit. To encourage the development of a knowledge culture, the
Knowledge companies should abandon the traditional structure in which decision rights are reserved for people at the top. division began using peer group supervision and relying on in-house coaches to do both one-on-one and team coaching at all levels. The results were so impressive that CSC Germany took the approach to its 34-employee IT Architecture Consulting unit. In April 2009 ECM’s revenue, after dipping in December 2008, rose sharply and continued upward. IT Architecture Consulting, which had been performing poorly, showed marked improvement on a productivity measure known as utilization in the months after control was relaxed. CSC is moving to spread this new management style across more of its divisions. The telecom-component supplier ANADIGICS took the no-control approach nearly a decade earlier. The $250 million company had found that its centralized, authority-driven structure couldn’t respond to the fast-moving industry’s challenges and opportunities. In 1998 Bami Bastani (who contributed
to the preparation of this article), then ANADIGICS’s new CEO, distributed authority to employees on the basis of their ability to respond to changes in the market, so that they could make speedy decisions. Within two years revenue had doubled and the company reached solid profitability, with quarterly gross margins improving to more than 50%. Subsequently, high tech suffered a severe downturn from 2000 through 2005. Downturns create an even greater need for innovation in products, behaviors, and organizational structures – and thus an opportunity for the no-authority approach. ANADIGICS employees focused their energies on 3G wireless technology and thus positioned themselves well to emerge from the downturn. When the sector revived, the company achieved growth for 13 consecutive quarters, through mid-2008. CSC Germany and ANADIGICS are more than just a pair of outlier data points. Their experiences lend credence to the notion that companies reliant on knowledge and innovation should abandon the traditional structure in which decision rights are reserved for people at the top. Furthermore, we’ve found that contrary to what many CEOs assume, leadership is not really about delegating tasks and monitoring results; it is about imbuing the entire workforce with a sense of responsibility for the business. This applies mainly to knowledge organizations, but even production-oriented companies can benefit from having employees who feel more empowered and engaged. If abdication of authority is to yield value for the corporation, however, individuals must be self-motivated. CSC Germany does this by allowing employees to work on the one of five topics that best utilizes their talents and excites their interest. This involves joining a topic community, such as the one focusing
Why Profit Shouldn’t Be Your Top Goal by Nathan T. Washburn MAKING THE BOTTOM line your top prior-
ity may not be the best way to improve profitability. Recent research shows that CEOs who put stakeholders’ interests ahead of profits generate greater workforce engagement – and thus deliver the superior financial results that they have made a secondary goal. This finding is based on survey data gathered from 520 business organizations in 17 countries, many of them emerging markets. We were testing the hypothesis that if a CEO’s primary focus is on profit maximization, employees develop negative feelings toward the organization. They tend to perceive the CEO as autocratic and focused on the short term, and they report being somewhat less willing to sacrifice for the company. Corporate performance is poorer as a result. But when the CEO makes it a priority to balance the concerns of customers, employees, and the community while also taking environmental impact into account, employees perceive him or her as visionary and participatory. They report being more willing to exert extra effort, and corporate results improve. This research, which was conducted with Mary Sully de Luque, of Thunderbird School of Global Management; David A. Waldman, of Arizona State University West; and Robert J. House, of the University of Pennsylvania, underscores the risk of single-mindedly pursuing profit. Nathan T. Washburn (nathan.washburn@ thunderbird.edu) is an assistant professor of management at Thunderbird School of Global Management in Glendale, Arizona. Reprint F0912B
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on strategy and innovation. Issues are discussed in these groups until all participants come to an agreement, and leadership within the groups shifts frequently, settling on individuals who have the most competence in the areas of focus and are accepted by others as leaders. We call such practices “mutualism.” It involves measuring workers not against revenue or other numerical goals, which we have observed to be ineffective as motivational tools, but against qualitative values such as trust, responsibility, and innovation. And it implies that leaders don’t dictate vision or strategy; instead, they enable employees to create a common vision through, for example, off-sites for discussion of strategic issues and regular feedback and education. Hitting numerical goals has been the natural outcome.
Relaxation of control can benefit any knowledge company, but particularly in certain circumstances: when the organization begins to miss opportunities because it can’t understand or respond to market demands; when work is impaired because employees feel excessively pressured and harbor dissatisfaction; and when crises imperil the business. Then mutualism is the best way to unleash the power of employees’ creativity. A.D. Amar (
[email protected]) is a management professor at Seton Hall University’s Stillman School of Business in South Orange, New Jersey. Carsten Hentrich (
[email protected]) is the director of IT Architecture at CSC Germany in Frankfurt. Vlatka Hlupic (
[email protected]) is a professor at Westminster Business School in London. Reprint F0912A
OFFICE SPACE
In Open Workplaces, Traffic and Head Count Matter by James B. Stryker RESEARCH SUPPORTS ALL sides of the debate over the merits of open workplaces:
An MIT study finds that a wall-free office plan increases face-to-face communication among workers; a study at Stanford demonstrates the opposite; and a third study reports no effect. My research suggests that these studies disagree in part because other factors are in play – get them right, and you’ll position your employees to experience the face-to-face interaction you’re seeking. In my study I observed and questioned scientists at two U.S. pharmaceutical R&D sites. Here are some of my findings:
Visibility. People in open cubicles placed along main routes of circulation or adjacent to atria reported almost 60% more face-to-face communication with team members than did those in low-visibility spots.
Density. The more people in the immediate area, the more face-to-face interaction took place. Workstation arrangements with a high density – an average of 16 people within a 25-foot radius – yielded 84% more team-member communication than arrangements with a low density (an average of four people).
Oases. Workers with many informal meeting places nearby (an average of 22 within 75 feet) reported 102% more face-to-face team communication than people
WEB MARKETING
How to Combat Online Ad Fraud by Benjamin Edelman
MARKETERS ARE LEARNING that advertising online can be like going down a rabbit hole into a world where many things are not what they seem and tricksters are all too quick to make your ad dollars vanish. One advertising network I recently examined found that at least 14% of its online ad placements were tainted by fraud or violations of its policies. Understanding the pitfalls can offer a measure of protection. Advertisers should redouble their efforts to verify partners’ identities and practices and should question measurements of ad effectiveness, which can be completely inaccurate even while being very precise. Delaying payment to publishers and other partners provides additional protection. A delay should be long enough to give the advertiser or network a chance to detect fraud but short enough to keep honest publishers interested in the advertiser’s business – 150 to 200 days would have been best for one ad network I recently studied. With the resulting savings, the advertiser can offer a bonus to retain honest publishers. Delaying payment cannot replace the detailed, specialized work of exposing deceptive marketing practices. But in addition to adding leverage, it demonstrates a serious commitment to uncovering the truth. For advertisers just beginning to realize the importance of protecting themselves from fraud, paying in arrears is a good first step.
Benjamin Edelman (bedelman@hbs.
in areas with few such spots (an average of four). So the key question for workplace design may be less whether to take workers
edu) is an assistant professor at Harvard
out from behind closed doors than how to design open workspaces to stimulate
Business School. An expanded version
fruitful interactions.
of this article, with specific examples and
James B. Stryker (
[email protected]) teaches in the MBA program at Saint Mary’s College of California in Moraga.
Reprint F0912C
perpetrators, will appear on HBR.org in November at http://blogs.harvardbusiness. org/hbr/now/2009/11/dark_underbelly_of_ online_ads.html.
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