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Walking on two legs

This presentation addresses the dual need for managing innovation as well as innovating management itself, by balancing between the exploitation of current business activity and the strategic dialogue on the future.
by

Sjoerd (Georges) Romme

on 4 April 2016

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Transcript of Walking on two legs

Agenda
Leadership & (Innovation) Management =

a highly complex challenge that we need to understand ánd organize properly, instead of leaving it to a single (group of) person(s)
The CEO leads ...

subordinate staff (e.g. business unit managers)
meetings of the executive board
meetings of several (e.g. investment) committees
creating of value for clients/customers
creating shareholder value (incl. communication and interaction with shareholders and capital market)
developing a collective ambition and corporate strategy
etcetera !?

A leader / manager …
has an inspiring vision
takes (tough) decisions
knows how to cope with resistance
can coach, trust and connect people
uses his/her emotional intelligence
is a figurehead for the organization
creates conditions in which employees can perform optimally
Complexity (science)
Walking on two legs
Management (of) innovation:
Walking on two legs

Distributed knowledge, cognition & intelligence:

Particularly in knowledge-intensive organizations, initiative-knowledge-influence is much more widely spread than those of formal leaders only

Distributed leadership:
Leading what?
Innovation management theory & practice
Photo credits: 'horizon' by pierreyves @ flickr
Sjoerd (Georges) Romme

professor of Entrepreneurship & Innovation
E-mail: a.g.l.romme@tue.nl

Theory vs practice
Complexity (science)
Walking on two legs
Research evidence
What is inhibiting change?
Source: Starren & van de Kerkhof, 2006
Ron Weil (FD, 6-8-2011):

“The average CEO is an introvert and angst-ridden controlfreak.”

“Leaders ask their staff to be ready for change, but do not engage enough in sense making. (…) Sense making is not done via a marketing agency, or slogans, but by emotional connections with employees.”

“Leaders should develop an ego allergy. Less personality, so they can function as primus inter pares.”
BUT PRACTICE IS DIFFERENT ...
Every participant is leader and follower, depending on moment, task and target

"Leadership is an emergent event, an outcome of relational interactions among agents"
(Lichtenstein et al. 2006)
Distributed leadership has been observed among the pygmies
(Kets de Vries 1999)

Leaders need to be able to manage, coordinate and use knowledge and intelligence that is widespread in and around their organizations
Key message
Managing/leading today requires skills in
designing
the (switching between)
exploitation
of the current business and the
dialogue
on the organization's future
All business processes

that drive current performance
Key condition for managing current business = unambiguous accountability
(Jaques 1997)
I didn't say it's your mistake, but I do hold you accountable
“By virtue of hierarchic structure, the functional efficacy of the higher-level structures, their stability, can be made relatively independent of the detail of their microscopic components. By virtue of hierarchy, the several components on any given level can preserve a measure of independence to adapt to their special aspects of the environment without destroying their usefulness to the system.” (Simon 1973)
Unity of command
Sequence of levels of accountability
At all levels, managers and employees take their
responsibility
&
act accordingly
When (any) hierarchy is used as primary setting of dialogue and change management, this is likely to lead to demotivation among employees and under-utilization of change potential (Wissema 2000)
dialogue about future of corporation
(future p-m-t portfolio)
Conditions for strategic dialogue
Examples
Platform:
it is clear for everyone when & where the strategic dialogue takes place, also to avoid interference with current business processes
Inclusiveness:
all intelligence available in (and around) the organization is activated/utilized, to generate the best outcome ánd high commitment
Psychological safety:

individual participants feel free to speak up and/or act

(Edmondson 1999; Romme & Barrett 2010)
DSM (Heerlen, NL):
Business strategy dialogue and corporate strategy dialogue, involving a deep and penetrating discussion on key strategic issues and dilemmas

3M (USA):
Each employee and manager can use part of his work time to develop own ideas & projects, and also apply for grants to develop these



Endenburg Elektrotechniek (Rotterdam, NL):
Each staff member participates in a circle that is responsible for policy decisions about its own work environment (
sociocratic approach
)

Zappos / Amazon (USA):
Everyone can spot a problem/challenge, consult colleagues for solutions, and initiate decisions in circle meetings (
holacratic approach
)
Multiple recipes
for switching - examples:
excellence in switching between two legs/arms is rare
Well-organized strategic dialogue in clearly defined platform, time span and frequency (i.e. each business strategy dialogue takes place once every 3 years, corporate strategy dialogue once every 5 years)
Between these dialogues, strong focus on realizing the strategy (cf. current business)
"Devil's advocate" type of discourse on each major option, implying the outcomes have been thoroughly scrutinized
Entrepreneurial behavior & creativity of many employees makes the strategic dialogue more open, but also more complex
Each employee has a substantial experimental space for initiative and renewal -- as such, 3M continually develops a large number of options for the future (next to attention to current business)
Switching between current business and dialogue on future is thus essentially done at individual level, within an enabling corporate setting
3M
DSM
Research evidence
Ability to walk on, and switch between, two legs is a key determinant of structural (long-term) firm performance
Firms primarily walking on one leg perform less and run a substantial risk toward bankruptcy or another forms of corporate failure

(Leonard-Barton 1992; Adams & Boike 2004; Helfat et al. 2007; Damanpour et al. 2009; Walrave et al. 2016)
Walking on two legs & performance
By not engaging in any strategic dialogue,
Polaroid
continued to focus on analogue photography in the 1990s. As such, it missed the transformation to digital photography
(Tripsas & Gavetti 2000)
Philips
has focused (in last 15 years) on managing and optimizing (shareholder value of) its current business portfolio. Since 2000, its turnover growth and shareholder value are structurally lower than those of its competitors (e.g. Siemens, Sony, Samsung)
Firms that continue to walk on two legs get through the recession better

Particularly the future-oriented "dialogue" leg needs extra attention during a recession

(Srinivasan et al. 2011; Walrave et al. 2011/2016)
Performance in a recession
EXAMPLE:

Apple

did not suffer from the 2007-2008 recession as much as others, and benefited more from subsequent recovery period (2009-2010)
dialogue
What's inhibiting change?
Publicly owned firms are under
enormous pressure
from capital market to focus on short-term financial performance -- especially when performance is lower than expected

Key to the (in)ability to walk on two legs:
interaction between
CEO (Executive Board), Board of Directors and shareholders resp. capital market


CEOs

engagement in generative
DOUBT, that is, deliberately seek the experience of not knowing
ability to develop a

coherent & convincing
VISION
on accountability-control-performance
-- acknowledging the strong, but delayed, effect of "walking on two legs" on firm performance
ability to step back and DESIGN
a distributed (leadership) capability

that involves hundreds, if not thousands, of people throughout the organization

top management must sustain this non-traditional "
design
" role in the face of shareholder pressure regarding its costs, investments and performance
designing & shaping complex systems (e.g. platforms for strategic dialogue),
based on shared ambitions and values (e.g. accountability, inclusiveness)
Critical factors at top management level
THEORY SAYS:
In the context of change management and strategic dialogue, using (any) hierarchy is likely to demotivate employees and under-utilize the potential for change and innovation
(Milliken, Morrison & Hewlin 2003; Wissema 2000)
Circularity:
Do we expect too much
from our CEOs and other managers ?
ability to switch between managing current business and platform for dialogue

Design perspective
this idea is central to how business schools prepare future leaders & managers:
a single (group of) person is in charge, and
makes rational decisions, by selecting the best actions, based on rigorous analysis
Sources
Ackoff, R.L. (1994). The Democratic Corporation. New York: Oxford University Press.
Adams, M. & D. Boike (2004). The PDMA foundation 2004 comparative performance assessment study. Visions, vol. 28: 26-29.
Bloom, N., C. Genakos, R. Sadun & J. van Reenen (2012). Management practices across firms and countries. The Academy of Management Perspectives 26: 12-33.
Edmondson, A. (1999). Psychological safety and learning behavior in work teams. Administrative Science Quarterly, vol. 44: 350-383.
Financieele Dagblad, interview with Ron Weil, 6-11-2011.
Damanpour, F., R.M. Walker & C.N. Avellaneda (2009). Combinative effects of innovation types and organizational performance: A longitudinal study of service organizations. Journal of Management Studies, vol. 46: 650-675.
Garud, R., J. Gehman & A. Kumaraswamy (2011). Complexity arrangements for sustained innovation: Lessons from 3M corporation. Organization Studies, vol. 32: 737-768.
Helfat, C.E., S. Finkelstein, W. Mitchell, M. Peteraf, H. Singh, D. Teece and S.G. Winter (2007). Dynamic Capabilities: Understanding Strategic Change in Organizations. Oxford: Blackwell Publishing.
Jaques, E. (1997). Requisite Organization: Total System for Effective Managerial Organization and Managerial Leadership for the 21st Century. London: Gower.
Kets de Vries, M.F.R. (1999). High-performance teams: Lessons from the pygmies. Organizational Dynamics, winter 1999: 66–77.
Leonard-Barton, D. (1992). Core capabilities and core rigidities: a paradox in managing new product development. Strategic Management Journal, vol. 13: 111-125.
Lichtenstein, B.B., M. Uhl-Bien, R. Marion, A. Seers, J.D. Orton & C. Schreiber (2006). Complexity leadership theory: An interactive perspective on leading in complex adaptive systems. Emergence: Complexity and Organization, vol. 8 (4): 2-12.
Locke, K., K. Golden-Biddle & M.S. Feldman (2008). Making doubt generative: Rethinking the role of doubt in the research process. Organization Science, vol. 19: 907-918.
Milliken, F.J., E.W. Morrison & P.F. Hewlin (2003). An exploratory study of employee silence: Issues that employees don’t communicate upward and why. Journal of Management Studies, vol. 40: 453-476.

source: Garud, Gehman & Kumaraswamy (2011)
source: Schreuder (2010)
Enron, ICI, Worldcom, Global Crossing, Tyco International, Kmart, Polaroid, Xerox, Vestia, Volkswagen & many others




About

half

of all managerial decisions made in organizations
fail

(Nutt 1999 & 2011)
OTHER SOBERING FACTS
Many managers, even those with degrees obtained at business schools, struggle to
lead & motivate
their staff to realize objectives

(Haney & Sirbasku 2011)

Ongoing stream of accounting scandals, options-backdating schemes, other

ethics breaches
,
and dramatic cases of
mismanagement
Distribution of professional management practices among firms and other organizations

Source: Michael F. Mehnert - Own work, CC BY-SA 3.0,
https://commons.wikimedia.org/w/index.php?curid=11002099





Megaprojects such as Berlin Brandenburg airport, San Francisco Transbay Terminal, 2014 Soccer World Cup in Brazil, and 2014 Winter Olympics in Russia
INNOVATION MANAGEMENT IN RECESSIONARY TIMES
Source: Walrave et al. (2012)
two
different
interpretations of hierarchy
fundamental property of all viable systems, that differentiates behavior & performance in different levels of abstraction
critical to synthesis and survival of complex self-regulating systems
:
HIERARCHY
Managers, especially in large (knowledge intensive) organizations, need to design & direct ...
exploitation of current business

(existing p-m-t portfolio)
switching timely & effectively
between exploitation of current business and dialogue about future
Leading = making decisions
Leading = designing


Romme, A.G.L. (1996). A note on the team-hierarchy debate. Strategic Management Journal, vol. 17: 411-417.
Romme, A.G.L. & F.J. Barrett (2010). Strategy formation and corporate citizenship: Conversations and decisions that matter. Journal of Corporate Citizenship, vol. 38: 93-106.
Romme, A.G.L. & G. Endenburg (2006). Construction principles and design rules in the case of circular design. Organization Science, vol. 17: 287–297.
Romme, G. (2015). “The big misconceptions holding holacracy back”, HBR.org (September 10, 2015).
Romme, G. (2016). The Quest for Professionalism, Oxford: Oxford University Press.
Schreuder, H. (2010). DSM in motion: Driving focused growth. Address given to Vereniging voor Strategie & Bestuur, 9-11-2010.
Simon, H.A. (1973). The organization of complex systems. In: H.H. Pattee (ed.) Hierarchy Theory: The Challenge of Complex Systems, pp. 1-27. New York: George Braziller.
Srinivasan, R., G.L. Lilien & S. Sridhar (2011). Should firms spend more on R&D and advertising during recessions? Journal of Marketing, vol. 75(3): 49-65.
Starren, H.G. & T. van de Kerkhof (2006). De 21 Geboden van Modern Leiderschap. Amsterdam: Business Contact.
Tripsas, M. & G. Gavetti (2000). Capabilities, cognition, and inertia: evidence from digital imaging. Strategic Management Journal, vol. 21: 1147-1161.
Välikangas, L. & A.G.L. Romme (2011). Mindfulness, experimentation and zero-trauma change: Towards a theory of organizational resilience. Working paper, Aalto University.
Walrave, B., K.E. van Oorschot & A. G. L. Romme (2011). Getting trapped in the suppression of exploration: A simulation model. Journal of Management Studies, vol. 48: 1727–1751.
Walrave, B., K.E. van Oorschot, F. Langerak & A.G.L. Romme (2012). Fighting the bear and riding the bull: Exploitation and exploration in times of recession and recovery. Working paper, Eindhoven University of Technology.
Wissema, J.G. (2000). Fear of change? A myth! Journal of Change Management, vol. 1: 74-90.

technologies that redistribute power and authority throughout the organization, to ...

address the abuse & rationalization of power in organizational settings -- as the key factor inhibiting innovation and renewal
Managers / entrepreneurs are attracted to these management technologies because they

make companies operate more
reliable
and
transparent
, like software (code)
use
engineering
terminology (e.g. organizational structure as operating system)
creates a new
hierarchy
around work rather than titles or positions

managers & entrepreneurs should:

start operating like professional surgeons or aircraft pilots

using

management technology
- comparable to state-of-the-art operating room for surgeons or a modern aircraft for pilots ...
Pioneered by two entrepreneurs with engineering background, Gerard Endenburg (NL) and Brian Robertson (USA):



-
sociocratic
circular organizing
-
holacratic
circular organizing
Examples of
sociocratic
circular organizing

Fabrique:
award-winning design agency with offices in Amsterdam, Delft and Rotterdam

MyWheels:
care-sharing service in the Netherlands that has been applying circular organizing from its early days as start-up in 2003

Terra Viva Group:
agribusiness company that used circular organizing to fuel its growth from a small family-owned business to one of the largest agri-business firms in Brazil

IVT Thuiszorg:
Dutch organization of about 350 employees offering a broad portfolio of homecare services

More than 10
cohousing communities
in the US, for example Champlain Valley Cohousing and Burlington Cohousing East Village
Examples of
holacratic
circular organizing

Ternary Software
(USA)

David Allen Company
(USA)

Precision Nutrition
(USA)

Medium
(USA)

F19
(Netherlands)

Zappos
(part of Amazon)
Tony Hsieh (Zappos) is using holacracy to replace Zappos’ traditional management structure to confront some of the plagues observed at many large companies―including employee disenchantment & inability to take risks

He wants “Zappos to function more like a city and less like a top-down bureaucratic organization” (Groth 2015)
without which the growing
expectations

of management as a profession are increasingly
difficult to meet

(Locke et al. 2008; Walrave et al. 2011; Välikangas & Romme 2011)
Outlook
Management (of innovation):

the rise of more advanced general
management technologies
, especially:
(Source: Bloom et al. 2012; Romme 2016)
In economic recessions, most firms focus on their current business and decrease their efforts in innovation and exploration
Panama Papers
By Wikileaks, Nowikileaks - Media Kit - Images for publications Media Kit, Image: Wikileaks_logo.svg, originally from the English Wikipedia, vectorized by User:Mysid., CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=6011273
Technological
disruption
Global Reporting Initiative
Corporate Social
Responsibility
options-backdating
schemes

accounting scandals
mismanagement of risks
Big data
Source: Ron Kroon (ANEFO) CruyffCollection / Archive: Fotocollectie AnefoNummer toegang: 2.24.01.05Filenumber: 920-6725, CC BY-SA 3.0 nl, https://commons.wikimedia.org/w/index.php?curid=30822042
EXEMPLARY "MANAGEMENT TECHNOLOGY":

-
sociocratic

circular organizing
-
holacratic

circular organizing

pioneered by two entrepreneurs with engineering background, Gerard Endenburg (NL) and Brian Robertson (USA)
Organizations currently using holacracy:
Zappos
(USA),
Ternary Software
(USA),
David Allen Company
(USA),
Precision Nutrition
(USA),
Medium
(USA),
F19
(Netherlands)
EXAMPLES

Fabrique
: award-winning design agency with offices in Amsterdam, Delft and Rotterdam

MyWheels
: care-sharing service in the Netherlands that has been applying circular organizing from its early days as start-up in 2003

Terra Viva Group
: agribusiness company that used circular organizing to fuel its growth from a small family-owned business to one of the largest agri-business firms in Brazil

IVT Thuiszorg
: company of about 350 employees, offering a broad portfolio of home care services
Full transcript