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People-based Management: Creating a rewarding environment through people-based management will increase opportunities for all

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When President Clinton was campaigning for re-election, the slogan 'It's the economy, stupid' became famous. There's a new equivalent for management: in which you substitute 'the people' for 'the economy' - and you don't have to be very clever to see why. Thinking Managers has sounded many of the themes of people-based management in previous months. Take the idea that other staff are customers who depend on management for excellent service: this is the antithesis of the command-and-control methods by which most organisations are still run.

'Increase power by dispersing it: encourage creative dissent: build autonomous teams'. These are among the watchwords of the alternative management which, as reported here, has been led by the gee-whiz companies of micro-electronics. The quotes come from a book by Geoffrey James, Giant Killers (Random House: Orion), that explores the world dominated by Microsoft, Compaq, Dell, Hewlett-Packard and a multitude of others. James heavily endorses my argument that, in this industry, necessity has been the mother of inventing new ways of running organisations - methods that are based preeminently on people.

He argues, for example, that the old concept of the corporation as a machine has lost all validity; that now it is a community, in which managers seek to communicate directly with people, create opportunities for social interaction, and 'make work fun'. You treat employees as equals, too, rather than as children. That means hiring those who are self-motivated, ending the 'fancy perks' that separate the boss class from the workers, and encouraging informal ways of working. The climate of fear, along with the whips and chains that fostered it, goes out of the window. Instead, you operate by trust.

The formula not only sounds attractive, but is supported resoundingly by fabulous business results. All management writers know, however, that cause-and-effect doesn't necessarily work in this field. If you have a monopoly position, like Microsoft in PC operating systems or Intel in micro-processors, the profits flood in because of your market strength and the high price that the traffic will bear. Success may reflect brilliant management: or it may conceal gross errors in both decisions and execution (that has certainly been true at both Microsoft and Intel). Is there good reason for thinking that the 'giant killer' lessons are universal?

One very sound reason is that the trends are plainly heading the same way in business big and small. Even inside the established hierarchies, people-based management is making headway. More and more companies, for example, are forming alliances with suppliers, customers and competitors. The traditional control mechanisms won't work with people who are not actually your employees. But the old controls work no better with employees: that is, not if you wish to encourage self-motivated people, discourage bureaucracy, and turn decision-making into a collaborative process reaching deep into the organisation.

At General Electric in the US, chairman Jack Welch has declared war against 'Type IV' managers - even those delivering excellent short-term results - who resist the new people-based values. The Type IVs get their results 'without regard to values, and in fact often diminish them by grinding people down, squeezing them, stifling them. Some of these learned to change, most couldn't. ' Welch's reaction was to begin dismissing Type IVs. Using the autocratic power of dismissal to inculcate democracy is more than a mite paradoxical, but Welch is adamant that 'it had to be done if we wanted GE people to be open, to speak up, to share.'

He also wanted them to 'act boldly' outside 'traditional lines of authority' and 'functional boxes' in this new 'learning, sharing environment'. Welch wasn't writing in some progressive management journal, but in the GE annual report for 1995. His argument is that short-term thinking damages the long-term interests of a company, not only by the actions it encourages, but because it undermines people-based management. People who are expected to respond only to orders will eventually act accordingly - like human machines.

You can see the results in one fascinating case-history. The super-manager in charge of the company concerned 'developed and led a culture in which managers were often tested to destruction, where there were always complaints and criticisms, virtually never compliments, praise or thanks'. One manager, who 'could see I was going to get crushed', left after five years of 'tremendous learning experience' because he wanted to avoid the fate mentioned above: 'you become a loyal servant - you've had all the initiative bashed out of you.'

In this company, bullying manners became routine, while the senior people at head office became courtiers working 'for place and position'. It was also a blame culture, in which the boss 'assumed that if a business is going well, that is because of the manager, and similarly a bad business is the fault of the manager'. This could lead to false judgments of people's abilities and to arbitrary dismissal. Not surprisingly, the style 'bred excessive caution and defensiveness' in many managers.

There's a tragic waste in this account. The company was positioned by its technology, businesses and traditions to take advantage of some of the great opportunities for growth seized by the 'giant killers'. Its leader didn't actually slaughter projects designed to grab those chances, because his management theory, while based on fierce challenge to managers, stopped short of telling them 'what they should or should not do'. But people are naturally disinclined to put their heads in the lion's mouth by backing projects that might fail.

'If you don't try and fail, you can't be criticised for the failure', said one observer. The tragedy is that 'the man at the top' would actually have been in favour of new initiatives, 'but he doesn't properly understand that he runs a system that frustrates it.' That's the case for people-based management in a nutshell. In any organisation, the leader needs to develop a system that encourages and facilitates the behaviour that will best and most rapidly achieve the ambitions of the entire organisation and the people it employs.

The company in the amazing case just described is the General Electric Company, no relation to Welch's GE except in title, where the top man until his belated retirement in 1997 was Lord Weinstock. His methods served shareholders well. The quotes are from a biography (Weinstock: HarperCollins) in which two financial journalists, Alex Brummer and Roger Cowe, note that in 33 years sales rose from £147 million, with profits of £6 million, to £11 billion, with profits of almost £1 billion. Moreover, Weinstock left the company sitting on £1.4 billion of cash.

As the authors point out, though, the key advances were made in Weinstock's first decade. He worked wonders through the imposition of rigorous controls and strong emphasis on the individual manager's responsibility for the financial results of clearly defined businesses. It's a fine recipe. Since 1973, however, the world has changed. GEC was poised to profit enormously from great growth markets like mobile telephony, semiconductors, medical equipment and consumer electronics, even software. Instead, its defence interests became its dominant wholly-owned business.

The whole story is a parable for the new management age. A firm of head-hunters, Theaker Monro and Newman, commissioned a survey among higher paid executives that charts the difference between 1973 and today. The emphasis has shifted markedly from downsizing to organic growth. Companies want managers who are skilled in running projects and leading change. They require marketing skills so that customer focus can be intensified. They need to break into new industries, to match new competitors in old markets, to cross-fertilise between businesses.

For all this to happen, management has to become multi-disciplinary, cross-functional and interdepartmental, while vertical chains of command are supplemented or superseded by horizontal relationships. The pressure for technological and other change has been intensified by competition, which is becoming more and more global, meaning still greater competitive intensity. Not surprisingly, the 200 firms interviewed for the TMN survey found that the supply of management skills wasn't matching the crying and growing need: two-thirds reported current skills shortages.

Firms make shortages worse by inadequate and inappropriate training. Only 28% of the sample were equipping their managers to cope with change, while less than 5% were training people to make the most of IT - even though Percy Barnevik, the chairman of ABB, is plainly right in saying that 'All companies are in the IT business today. The critical difference lies in how well - or badly - they use the technology'.

Barnevik and ABB are among the examples which Brummer and Cowe hold up as shining contrasts to Weinstock and GEC. The similarities between these two conglomerates of independent businesses, with their flat structures and strict financial controls, are marked. The key difference lies in their people management. The inspirational Barnevik is contrasted with the 'distant, anonymous' Weinstock. The latter served his shareholders well, as noted, but he failed to serve his managers, and thus their people, as effectively as they deserved - because that was never his objective. GEC would certainly have failed this questionnaire, which tests how well a management is serving its people. Does the company have....

1. The right culture to reach its goals?
2. The required knowledge, skills and abilities?
3. The appropriate measures, rewards and incentives?
4. The right organisational structure, communications systems and policies?
5. The ability to improve work processes, to change and to learn?
6. The leadership required to meet its goals?

The six questions are derived from the Harvard Business Review,in which Dave Ulrich argues that the human resources function must take the lead in meeting the challenges of globalisation, achieving profitability through growth, information technology, knowledge management and 'change, change and more change'. These five areas are pre-eminent in the strategies of the 'giant killers', but there's a sixth. Ulrich notes that 'the primary responsibility for transforming the role of HR belongs to the CEO and to every line manager who must achieve business goals'. But that doesn't go far enough: every manager, not only CEOs or line managers, must be a people manager first and foremost.

You wouldn't get that impression from another article in the same issue of the HBR, in which Robert Simons and Antonio Davila explore the interesting notion of 'Return on Management'. That means the amount of productive organisational energy released in relation to the management time and energy invested - though just how do you measure the two types of energy? Leaving that difficult matter aside, the two authors ask five questions:

1. Does your organisation know what opportunities are out of bounds?
2. Are your company's critical performance measures driven by a healthy fear of failure?
3. Can managers recall their key diagnostic measures?
4. Is your organisation safe from drowning in a sea of paperwork and processes?
5. Does everyone watch what the boss watches?

The article produces anecdotal studies of companies like Motorola and Pepsi-Cola as examples of high ROM. Note, however, that people figure little in the five questions, all of which could have been answered with a resounding Yes in Weinstock's GEC. The ROM concept focuses on control: people-based management is founded on freedom. No opportunities are out of bounds, nobody fears failure, measurement is less important than achievement, and 'everybody turns when father turns' is anathema. The only point on which people-based managers agree with the ROM thesis is the healthy disrespect for paperwork and for non-productive processes. But that is surely found in any serious attempt to manage effectively.

Geoffrey James gives a convincing picture of what happens when management is defined as control. You get gridlock: 'The attempt to control creates resistance and spawns other attempts to control, causing decision-making to grind to a halt'. He has a telling quote from a Xerox escapee: 'Everything from the press release to the product description to the information sheet had to be reviewed and approved by multiple vice presidents and announcement committees. We spent almost six months trudging through the paperwork' .

You don't have to look much further for an explanation of Xerox's failure to exploit the greatest invention it ever made, the personal computer. The culture of control, inward-looking and obsessive, blotted out the vision that might have created the world's most successful industrial enterprise. It isn't only gridlock that grips the organisation. There's also the 'yes-man syndrome', which means that 'People agree with their managers even when there are better ideas and better ways to approach a situation'. And (see GEC) there's 'limited power' - because 'Control that is limited at the top limits the exercise of power to the executives, slowing corporate growth'.

Power is at the root of the difficulty in moving to people-based management. The more absolute the power, the less its possessor has to care about his or her behaviour or what happens to others. But a manager's conduct directly affects the performance of those others, and their performance depends on how much or how little they can influence their own work and its outcomes. The issue of outcomes is fundamental - but it may appear to have no direct link with the issue of power.

In an anti-absolutist book entitled The Power Principle (Simon & Schuster), Blaine Lee thus lists six types of behaviour that will change managers from GE's Type IVs to the adventurous type who enable the giant killers to kill. You've crossed the divide if you can answer yes to these questions. Can you...

1. Learn about alternatives?
2. Get help from others?
3. Develop a desire for something different?
4. Recognise opportunities to choose?
5. Make the decision to change?
6. Take a leap of faith?

The difficulty with those questions is that they are 'soft' in a world where hard results are decisive. How can you translate people-based management into hard practice? For a start, give recruitment and training top priority, including training in the use of IT. Second, take every opportunity to place people in those multi-disciplinary, cross-functional, interdepartmental teams. More: copy Percy Barnevik at ABB and make special efforts to achieve cross-fertilisation between businesses and (if that's a factor) across frontiers. Eliminate layers of management, not to eliminate people, but to speed decisions and implementation. All this is needed to meet the demands, not just of fast-changing markets and technologies, but of changing people.

The nature and nurture of today's generation of managers differs in many respects from previous times. People are taking responsibility earlier, and these relative youngsters are more outspoken, more open to new ideas, more articulate, and more likely to move to other employers if the opportunities or the environment look better. As the electronic giant killers have shown, with such people you can have your cake and eat it, applying soft principles with hard methods to create a people-based business that is both enjoyable and vastly rewarding. For the killers, the slogan really is: 'It's the people - clever'.

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