Management on Lucid Manager

Positive Workplace Deviance and the Governance Chastity Belt

Peter Prevos — Mon, 17 Mar 2014 00:00:00 +0000

According to popular history, when European knights left for the holy land during the crusades, they fitted their wives with a nasty iron chastity belt to guarantee their fidelity. These devices were a crude method to enforce chaste behaviour because the Knights did not trust their wives while on their holy tour of duty. It is unlikely that chastity belts actually prevented any lonely woman from expressing natural desires. We can apply this lesson from history also to contemporary management and the rise of governance.

The paper chastity belt is a device to prevent deviant behaviour in the workplace. While necessary, such a device also stifles innovation. Lucid Managers practice positive deviance to enable their natural desire to innovate.

Organisational Chastity Belt

The chastity belt is making a comeback—and not only with contemporary connoisseurs of erotic bondage. The Global Financial Crisis has driven an increased focus on governance in organisations. Therefore, we have more risk management, more red tape, more creativity stifling procedures—more paper chastity belts.

These procedural chastity belts serve the same purpose as the medieval metal contraptions. A lack of trust in the ability of people to make the right decisions on your behalf often leads to a perceived need for corporate chastity belts. Chastity belts replace trust with a power dynamic.

Procedural chastity belts, just like their physical counterparts, are not foolproof methods to ensure chaste behaviour of wives nor of managers. Employees will circumvent any device that replaces trust when the motivation and the reward for deviance outweigh the risks.

The key to unlocking the regulatory chastity belt is to look at your processes and unravel them. Procedures should enable people to achieve objectives. They should not be the final word on how employees do their job. The people that write these procedures are after-all not all-knowing gods of management.

Positive Workplace Deviance

Lucid managers allow for positive workplace deviance, and they enable the employees to make their judgement on how to best achieve goals, instead of using red-tape.

Deviant Behaviour has a bad name for obvious reasons. We all know people who behave negatively in the workplace, even resorting to bullying or harassment. Positive workplace deviance is not about embracing your Machiavellian tendencies but more about breaking unwritten rules to progress organisational objectives. To think outside the box, to use a cheesy metaphor, requires you to bend the rules to shift reality.

A popular meme to express this idea is "not to give a fuck". Some authors censor one of these words with asterisks, but that goes against the spirit of the term. This somewhat crude popular wisdom does not imply that you can rampage your way through the workplace without caring about the consequences. Positive workplace deviance is the subtle art of crafting your niche within your organisation or your industry.

A Lucid Manager always asks why unwritten business rules exist and seek inspiration in playing little thought experiments to test the boundaries of the traditions within an organisation. Those trying to use positive workplace deviance to can find inspiration from the great Frank Zappa who famously said:

Without deviance from normality, there can be no progress.

The Importance of Useless Knowledge in Management

Peter Prevos — Sat, 25 Jan 2014 00:00:00 +0000

Although managing a business, or even a small part thereof, is a complex task, the solutions for solving problems often seem deceivingly simple. Managers resolve even the most complex issues with a two-by-two matrix or simple lists of steps. Most management books simplify the complicated world of business by providing attractive solutions with a high level of perceived usefulness. This article praises the value of the arts, perceived by some as useless knowledge. This article closes with some views of Steve Jobs about the Humanities.

In that goal-directed behaviour, managers often lose purpose and forget about what their mission is. Within my industry, many professionals are obsessed with engineering and forget about the true value of tap water.

I draw inspiration from knowledge outside my profession as an engineer to gain new perspectives. My inspiration lies in learning 'useless' subjects such as philosophy, ancient Greek or anthropology. My degree in the humanities has enhanced my engineering and management qualifications, and it has resulted in many publications and conference presentations.

This article shows how managers can improve their work by obtaining useless knowledge. What might seem useless and without purpose at first, will in fact become a powerful tool to become a more creative professional.¹

The Importance of Useless Knowledge

To become the best possible manager, you should invest time in acquiring ‘useless knowledge'. The type of knowledge that does not directly enhance the bottom line, but enlightens the individual.

British philosopher Bertrand Russell once beautifully expressed the importance of useless knowledge in an ode to the humble peach and apricot:

I have enjoyed peaches and apricots more since I have known that they were first cultivated in China in the early days of Han Dynasty; that Chinese hostages held by the great King Kaniska introduced them to India, whence they spread to Persia, reaching the Roman Empire in the first century of our era … All this makes the fruit taste much sweeter.

Bertrand Russell, In Priase of Idleness and Other Essays (1935).

To enlarge and sweeten the fruits of management, professionals need to embrace so-called useless knowledge. This knowledge is not the type of information you get from reading the trivialities on Twitter feeds or Facebook. The canon of useless knowledge is more profound and includes philosophy and its continuous questioning of everything, the lessons of history and appreciation of the arts—the humanities of the liberal arts.

Nothing more practical than a good theory

The words "useless knowledge" is problematic because it is a contradiction. There is no such thing as useless knowledge. A more suitable term would be indirect knowledge. This the type of knowledge that solves problems by introducing new perspectives from outside the world of business. Wielded correctly, understanding the humanities will make you a better manager by understanding new perspectives.

Managers often equate useful with being practical. There is, however, nothing more practical than a good theory. Besides doing something, managers also need to think. The humanities teach you how to think, how to take a new perspective, think about meaning and purpose, without falling into the platitudes of popular management books.

Knowing some basic philosophy of science helps managers to comprehend what 'evidence-based management' actually entails. Reading about ethical dilemmas and the solutions proposed by philosophers might prevent managers from making morally wrong decisions. Visiting an art gallery during lunch will reset your brain and provides new inspiration to solve your mundane work problems. Reading literature will help you to understand your customers better.

Steve Jobs and the Humanities

A well-grounded appreciation of the arts beyond economic value helps in creating beautiful products loved by your customers. A textbook example of an organisation that has integrated both business utilitarianism and the humanities is Apple. In one of his last public performances, Steve Jobs said:

It's in Apple's DNA that technology alone is not enough — it's technology married with liberal arts, married with the humanities, that yields us the result that makes our heart sing.

Useless knowledge makes you question the certainties of life; it creates a thoughtful and reflective mind, protected against impulsive decision making. Knowledge of the humanities literally humanises technology because, as Jobs put it: "technology alone is not enough".

For this reason, managers should embrace useless knowledge and study the classics, and the understand the humanities. Read some of Plato's dialogues and learn from Socrates how deviant behaviour leads to innovation. Finally, the next time you visit a bookshop, ignore the management section and pick a topic you know nothing about.

The video below is an extract from The Lost Interview (1995) in which Jobs discusses the early days of Apple and how the liberal arts made this company great.

Steve Jobs about the humanities.

Notes

This article is inspired by an article in Dutch newspaper Trouw by Jonah Kahn.

The Social Gadfly: The Benefits of Socratic Management

Peter Prevos — Sat, 18 Jan 2014 00:00:00 +0000

When studying business, there is little time for critical reflection on what has you have learnt. Universities arm newly minted MBAs with management tools such as Maslow's Hierarchy of Needs, the BGC Matrix, Porter's Five Forces and other devices to solve business problems. Their acceptance as valid tools is, however, often not based on critical reflection or solid empirical research but on mythical stories of how they were used successfully in the past.

The study of business and most of writing about business is based on the case method. In this system, students are presented with a business problem and placed in the shoes of the decision maker charged with solving the problem. This article briefly discusses what we can learn from ancient Greek philosophers and why we should practice Socratic management.

In the Critical Perspectives on Management course, Rolf Strom-Olsen advocates an approach that deviates from the standard case methods and draws from the more critical humanities. He sees the life of the ancient Greek philosopher Socrates as a signpost for a different way to think about business.

Socrates: “I know nothing except the fact of my ignorance”

The benefits of Socratic management

We know about Socrates from the vivid writings of Plato who was one of his followers. His books form the foundation of European philosophy and profoundly influenced Western civilisation as we know it. Socrates spent his time meeting people in the marketplace in Athens and questioned their opinions and cherished beliefs.

Socrates was a bit like an annoying toddler that keeps asking "Why?" to find the foundations of what we hold to be true. The Athenians themselves compared him with a gadfly, a fly that annoys horses and other livestock. A lifetime annoying people by questioning everything they know is not a way to Win Friends and Influence People. Socrates thus paid the highest price for his life as a social gadfly—he was convicted of drinking a cup of poisonous hemlock and died.

From my experience, it is clear that being the social gadfly in business can be a dangerous activity which could lead to career suicide. For me, following the Socratic path has helped me to be very successful in solving business problems. Only by daring to ask the hard questions and draw from disciplines outside business we can see perspectives on issues that a case method cannot provide.

The traditional case method of solving business problems looks backwards at past experiences. Using the analytical method from the humanities allows us to draw from entirely different perspectives and analyse issues in creative ways. Business is an applied social science, and it seems only reasonable that the methods of social science should be used to understand the problems of humans.

Socratic Management: philosophical deviance to improve performance.

The Lucid Manager is courageous and not afraid to be a social gadfly and practices Socratic management. The Lucid Manager stops asking "Why?" and goes beyond The Five Whys if needed. View your problem from all angles—including disciplines that are not traditionally used in business. Reading about the life of Socrates teaches the way of philosophical deviance as a path to business success. Following the path of Socrates will help you to develop those cherished innovative solutions.

It is not rocket science. Managing people is more complex

Peter Prevos — Fri, 16 Aug 2013 21:12:34 +0000

Space exploration is the crowning glory of human achievement. Anyone working in this industry—astronauts flying the spaceships and rocket scientists building them are the heroes of contemporary society.

Ever since the start of the space race in the 1960s, rocket engineering has been perceived as the most complex human activity. Rocket scientists became the ultimate symbol of human intelligence and the phrase “It is not rocket science” has been heard in offices around the English-speaking world.

Does this statement make sense? Is rocket science so much more complicated than management? I think that rocket science is grossly overrated and that the science of management is a lot more complicated than the science of building rockets.

The science of space exploration has been a lot more successful than the science of management. Robots explore Mars; one spaceship has left the solar system; people have walked on the moon, and much more exciting exploration is yet to come. Management as a science has not achieved much compared to rocket science. There is, for example, no generally accepted theory for motivation or effective decision making.

Rocket science is an extension of physics, and therefore all processes are entirely predictable. The more research scientists do, the better they understand the physical processes, the more predictable technology becomes. Management is not a physical science but a social science. Human behaviour is not like a physical process that can be predicted with high accuracy. Individual behaviour is unpredictable and more controlled by emotion than by reason.

Some might argue that human behaviour is, in essence, a physical process. It is, however, so complicated that it becomes inherently unpredictable as we are unable to model human behaviour in physical terms. There are no computer programs to help managers deal with people; there are no simple rules to make correct decisions—a lot of management is based on unsubstantiated rules of thumb and intuition.

That leaves me to conclude that management is not rocket science, it is a lot more complicated.

Literature

Abbott, D. (2003). It's not rocket science. The Safety & Health Practitioner, 21(8), 40–41.
Call, D. (2005). Knowledge management—not rocket science. Journal of Knowledge Management, 9(2), 19–30. doi:10.1108/13673270510590191.
Dentzer, S. (2011). Innovation: Needed, but not rocket science. Health Affairs, 30(3), 378.

The Corporate Jester: The Teller of Organisational Truth

Peter Prevos — Sun, 14 Jul 2013 00:00:00 +0000

In medieval times, the jester played a significant role in influential circles. Jesters, a precursor to the modern-day clown, wore bright, motley-patterned costumes and entertained the rich and powerful with their antics. Their role was not only to amuse but also to challenge their master and guests in their thinking. Jesters used to be a mirror of society, using satire to provoke the current status. This article discusses how a corporate jester can accelerate innovation by challenging the status quo.

The Historical Jester

The jester played an essential role in society because he was able to provide a unique perspective on current affairs. They were able to be critical without being concerned about internal politics and personal sensitivities. In doing so, they walked a fine line, because not being severe enough or being too critical could land them in serious trouble.

The Corporate Jester

Court jesters have disappeared from our cultural landscape, but it is time to bring this character back to the boardroom. I propose that major organisations hire a boardroom jester. The jester is allowed to attend all proceedings, say anything without punishment and use satire to hold a mirror to the people in power. The Boardroom Jester helps management to think “outside the box” by being an intellectual Jack-in-the-Box. An effective boardroom jester practices philosophical cynicism, rejecting social conventions and using humour to reveal the naked truth.

Unfortunately, most managers take themselves far too seriously. People in senior management positions—these days referred to as leaders—are often disconnected from what happens in their organisations. Staff are reluctant to speak about the details because of the fear the repercussions. Officially sanctioned jesters can hide behind their silly costumes and foolishness to ask the questions that others are afraid to ask. The Boardroom Jester does not form part of the illusion of hierarchy, so there is never any fear of damaging career prospects.

The idea of hiring people that can challenge current thinking is being frustrated by contemporary recruitment practices. Organisations seek people to fit into their carefully chose set of values, rather than people that deviate from normality.

Evil Leadership: Management Lessons From Mr Spock

Peter Prevos — Sun, 26 May 2013 00:00:00 +0000

Leadership is the magic word spoken around board tables everywhere on the globe. Consequently, being an excellent manager is no longer sufficient, we have to be a good leader. Nobody can provide a definitive definition of leadership. An army of leadership gurus is, however, more than happy to provide their personal perspective. Being a leader has become a value judgement. Nobody wants to be a good manager anymore; everybody wants to be a leader. A vast industry providing leadership training has developed in the wake of the movement away from management. Leadership coaches promise to transform average hard-working managers into great leaders. This article briefly explores the concept of evil or Machiavellian leadership.

Evil Leadership according to Spock

At Lucid Manager we don't get inspiration from management books or leadership programs. Lucid managers are inspired by the arts, and there is nothing more inspiring than the epic television series Star Trek. The inimitable Spock has a very different view of leadership in the mythic 1966 episode The Enemy Within:

What is it that makes one man an exceptional leader? We see indications that it's his negative side which makes him strong, that his evil side, if you will, properly controlled and disciplined, is vital to his strength. Your negative side removed from you, the power of command begins to elude you.

Lieutenant Spock (Stardate 1672.1).

In some management books, this evil side of management is innocently referred to as Machiavellian. Leaders with this trait are people who are willing to sacrifice ethics to achieve goals. Some people believe that this is a necessary condition of being successful. There is, however, no evidence that individuals with a high level of Machiavellianism perform better.¹

The Psychopath Leader: Snakes in Suits

Paul Babiak, an industrial and organisational psychologist, and Robert Hare, the creator of the standard tool for diagnosing psychopathy, wrote a fascinating book about psychopaths in the workplace, which he called snaked in suits. By the way, you can play our Corporate Snakes and Ladders career simulation if you like some free career lessons.

Babiak and Hare explored the prominence of people with destructive personality characteristics who could be classified as psychopaths. A psychopath does not have to be a knife-wielding mass-murdering maniac. Most of them are charming and intelligent, but lack empathy and are willing to sacrifice ethics to achieve personal goals. They can impress in interviews, but their lack of understanding creates tension in organisations, which in the long run leads to reduced performance.

So it seems that Spock was wrong. Being either good or evil bears no relationship to the level of performance. If there is no real difference, then leadership can easily digress into its evil counterpart. We should once again focus on good management instead of leadership. The leadership experiment has failed and has not created better organisations. Management is the key to good organisations. Management can be defined, and its outcomes can be measured, while leadership will forever be contested and its effects are unable to be measured.

Live long and prosper!

Notes

Gable, M., & Topol, M. T. (1991). Machiavellian managers: Do they perform better? Journal of Business and Psychology, /5/(3), 355–365. doi:10.1007/BF01017707.

Organisational culture and the risks of normality

Peter Prevos — Sun, 24 Mar 2013 15:24:47 +0000

"We need to change our organisational culture!" one of the board members said, "we have too many silos!". Everybody around the table nodded. The secretary noted another action in the board minutes and instructed the CEO to change the culture of the organisation.

Nobody knew what they wanted, all they knew was that something had to change. Because nobody knew what had to change, blaming the culture of the organisation for whatever was going wrong seemed like the best way forward. Not that anyone had any idea what organisational culture is. Judging by some of the inspiring articles in Harvard Business Review it seemed the best way to go.

Soon enough a consultant was hired and the work to transform the organisation began. The management team held meetings and defined a range of new values, based on a concise list of abstract nouns.

Paraphrasing George Bush after the 9/11 attacks: You either are with us and subscribe to these values, or you are an enemy of the organisation. Employees that criticise the new approach become the axis of evil. The consultant even drew a Bell Curve on a whiteboard to visualise that deviance from normality was from now on scorned upon. Thus began the new world order.

forcing normality destroys excellence and innovation

What the consultant didn't realise was that forcing people to normality within strict standard deviations represses spontaneity. The very act of improving culture can destroy sources of excellence and innovation. When organisations force their employees into the same value pattern. When managers no longer accept any deviance, they kill a significant source of improvement and innovation. Cultural programs can become an organisational chastity belt that constricts any creative naughtiness.

Positive deviance to change organisational culture

The link between organisational culture and business performance is strong. nevertheless, both researchers and practitioners struggle to describe what a healthy culture is. A culture of obedience to a norm might be pleasant, but it will lead to organisational mediocrity.

Positive corporate deviance is a necessary condition for innovation and improvement to thrive. Only by nurturing those that think differently are organisations able to become remarkable.

The Cynical Manager: The Organisation's Guard Dog

Peter Prevos — Thu, 24 Jan 2013 00:00:00 +0000

The cynical manager has a bad reputation in business, and some even call them a “cancer in your organisation”. In my view, most people are a bit too cynical about cynicism. Cynics are often valuable assets in corporations because they expose the 'new clothes' of management.¹

The word Cynic stems from the ancient Greek word for dog. The cynic might be a dog but is not a lapdog. The cynical manager can be the guard dog for organisations, protecting them from nonsense. Philosophical cynicism rejects conventional social values, such as business hierarchies. The cynic reflects on business practices from an external perspective and positively contributes by pointing out issues that might not be visible to their superiors. Being cynical is not necessarily a focus on negativity; it allows a view of the organisation outside of office politics.

The value of a cynical manager

Every manager should prefer a cynic over the pseudo-expert who is armed with uses buzzwords without substance. Cynics often exasperate upper management by questioning everything, like a child they keep asking "why". More often than not, however, they know what is going on and see through the veil of ignorance.²

Cynicism helps people to ensure that others don't take advantage of them and it benefits organisations through resistance to potentially dangerous decisions.³

In one experiment, participants that were cynical towards their organisation were less likely to comply with unethical requests than those who were less cynical.⁴

Types of cynicism

Not all cynical behaviour is, however, of equal value. Researchers have defined three types of cynics:

Affective
Cognitive
Behavioural

In other words, you can be cynical as an emotional reaction, such as irritation, tension and anxiety. When you are cognitively cynical, you think that self-interest runs your organisation. When you are behaviourally cynical, you display that attitude in how you perform at work.⁵

The most productive type of cynicism is the cognitive type—the cynic as the devil's advocate.

The Lucid Manager listens to cynics in their organisation to find out what is bothering them and learn from these experiences. You can cultivate your positive deviance by becoming the coorporate jester and use humour to make people think.

Notes

Dean Jr, J.W., Brandes, P. & Dharwadkar, R. (1998). Organizational cynicism. Academy of Management Review (23) 341–52.

Carlini, J. (1996). A trustworthy cynic. Network World, 13(42), 70–70.

Naus, F., van Iterson, A. & Roe, R. Value incongruence, job autonomy, organisation-based self-esteem: A self-based perspective on organisational cynicism. European Journal of Work and Organizational Psychology, 2007b, 16, 195–219.

⁴

Andersson, L.M. & Bateman, T.S. (1997). Cynicism in the workplace: Some causes and effects. Journal of Organizational Behavior 18, 449–469.

⁵

Kim, Tae-Yeol, Bateman, Thomas S., Gilbreath Brad and Andserson, Lynne M. (2009). Top management credibility and employee cynicism: A comprehensive model. Human Relations 62(10), 1435–1458. DOI: 10.1177/0018726709340822.

The Value of Value-Based Management

Peter Prevos — Thu, 27 Dec 2012 12:30:18 +0000

Many organisations espouse to implement value-based management. Scholars have proposed many definitions of what value-based management is, but most are not very illuminating. The consensus is that value-based management is a tool to achieve organisational consistency, or from a more cynical perspective, values are a device to control behaviour.

Philosophers refer to words such as value an ‘essentially contested concept', which means that there is no agreement on the definition of value, which has espoused a complex branch of philosophy called axiology.

In practice, value-based management leads to a list of abstract nouns that the organisation advocates. But, which of the many hundreds of positively interpreted abstract nouns in the English language do you choose?

Which value is critical to your organisation? Do you prefer creativity over punctuality? Or should we have pride in our work or is it dedication we are after? Any word that has positive connotations and ends in -tion, -ism, -ity, -ment, -acy and so on will do. Defining a list of value, which usually is no longer than four, is restrictive and leads to the implicit exclusion of other positive values.

Value-based management is primarily a crude implementation of virtue-based ethics. This approach leads to tensions because most organisations don't work according to virtues but follow a consequentialist approach; valuing those behaviours that lead to positive outcomes. Consequentialism can be problematic because not all activities that lead to the desired results are necessarily ethical. I have argued in an earlier paper that deontic constraints maintain the goal-oriented nature of business in an ethical environment.

Value-based management is of little value

In value-based management, it is assumed that following an arbitrary list of abstract nouns will lead to good business outcomes. These lists of abstract nouns are a cheat-sheet for employees on how to behave and a way for management or colleagues to assess the behaviour of others.

The values chosen from the multitude of available abstract nouns are usually decided democratically, without systematic examination of all available options. I prefer to stick to the list defined by Aristotle, more than 2000 years ago: wisdom; prudence; justice; fortitude; courage; liberality; magnificence; kindness and temperance.

Most businesses are not honest in their chosen values, Enron being an excellent case in point. The never list greed any of the other deadly sins as their real core values. And those so-called deadly sins are not always wrong. Peter Nowak argued convincingly that the seven deadly sins propelled humanity more for good than bad.

Value-based management is of little value as it ignores the practical outcomes of behaviours. It is also flawed because it arbitrarily highlights some values of others. Surely to be ethical, we should behave in accordance with positive values and not just those printed on our coffee mugs.

Buddhist Management: Organisations Do Not Exist

Peter Prevos — Sat, 08 Dec 2012 00:00:00 +0000

Yesterday, Cyndi Laurin presented at the 2012 World Business Capability Conference in Auckland about The Four Pillars of Organizational Greatness. Cyndi discussed one analogy that stuck in my mind as it took me back to my days as a philosophy student.

Cyndi asked which part of a car is the most essential. The audience mentioned several options, and then it dawned on me that this analogy is much like a famous line of reasoning in Buddhist philosophy about the self, which I will use to show that there is no such thing as an organisation and that no one part of an organisation is essential or more important than another.

One of Cyndi's slides at the World Capability Congress in 2012.

The idea of the firm in Buddhist management

The Buddhist management view of the firm would be that there is no such entity, illustrated by a debate between King Milinda and the Buddhist monk Nagasena.

Following the analogy used by the monk, we can compare a firm with a chariot, or in more modern terms a car. None of the individual parts of the car (the wheels, the engine, the radio and so on), are the car. Nor can you say that the combination of the parts is the car. We can not discover a firm at all, only the word that denotes the idea of the business.

A business consists of its parts, just like a car does. None of the components of the firm, however, are the firm. No part is less important than the other—although followers of the Lean philosophy will disagree on this one.

The Buddhist management argument extends to management in that a firm is not about its constituent parts, but a firm is a cycle of cause and effect, or in Buddhist terms, Karma. A firm is not about its CEO, the share price, employees, customers or fancy headquarters. A company, just like a person, is defined by the actions it takes and their results.

Following the Buddhist view to its conclusion, there is only one pillar of organisational greatness: the actions taken by the organisation and the impact these actions have on the beneficiaries.

Questions of King Milinda.

Are SMART objectives smart? Introducing DUMB objectives

Peter Prevos — Tue, 04 Dec 2012 00:00:00 +0000

SMART objectives are a seemingly immutable law in management, formulated initially by George Doran in 1981.¹ We are told in management seminars that objectives should be, in the words of Doran, Specific, Measurable, Assignable, Realistic and Time-related.

Many varieties have spawned from the minds of managers across geography and time, each focusing on slightly different aspects of the meme. There is no science behind this, as is the case with most popular management tools. The original meme has evolved through successive mutations.

DUMB Objectives

“What you measure is what you get…”

The term Specific can also be written as: ‘stretching' or ‘simple'; measurable has mutated into ‘meaningful', ‘motivational' and ‘manageable', Assignable is in most cases turned into ‘achievable', which is the same as being realistic. Realistic in turn has morphed into ‘relevant' or ‘resource-based' and lastly ‘time-related' has stood the test of time and has not changed much in the various mutations of the original definition. Some have even extended the mnemonic and defined SMARTER objectives.

Many managers seem to struggle with defining SMART objectives, evidenced by the multitude of websites and magazine articles devoted to this topic. The meme—I dare not call it a theory as there is no real research into the effectiveness of this popular business tool—is driven by the idea that we can only manage what we can measure. This approach is driven by the often cited words of former General Electric CEO Jack Welch: “What you measure is what you get…”.

I propose that organisations start using DUMB objectives:

Devious
Unfair
Manipulative
Bizarre

Evan Carmichael has defined DUMB Goals in a more useful and less satirical way.

Any list of adjectives that can remotely be related to management will do. Just Google “adjectives starting with …” and create your acronym.

Are SMART Objectives smart?

“Too often we measure everything and understand nothing”

Not everything activity in an organisation is measurable and using SMART targets often obfuscates the fact that business is about human interaction and can not always be placed into a quantitative straight-jacket.

How can you specify a SMART target for having empathy for customers? How do you define a measurable objective for having a genuine smile?

There is an inherent incompleteness in relying on quantitative measures when managing an organisation that deals with people and people are the very cornerstone of every organisation. It is undeniable that measurement is essential in business.

Although quantitative performance measurement is a necessary condition, it is not a sufficient condition for holistic performance measurement. To understand their business, managers must take the responsibility of venturing beyond the figures and dashboard displays. Perhaps DUMB targets can help to break the mould by deviating from the norm as a pathway to open innovation.

Doran, G. T. (1981). There's a S.M.A.R.T. way to write managements' goals and objectives. Management Review, 70(11), 35–36.

Functional Silos to Deliver Business Objectives

Peter Prevos — Sun, 18 Nov 2012 00:00:00 +0000

Functional silos are among the evilest things that can happen to a manager. Well, that is what you are lead to believe when attending the average management workshop.

One of the first things people mention when asked what is wrong with their work is having a “silo mentality”. Organisational silos are evil, and everybody who tries to build one runs the risk of becoming a pariah. I think silos are inevitable and valuable—I designed some early in my career as shown in the picture above.

A silo mentality is so prevalent that a small vocabulary has built up around this phenomenon: ‘information silo', ‘silo thinking', ‘the silo effect', ‘functional silo' and so on. The language around removing silos is quite physical and evocative: silos need to be ‘demolished', ‘blown up' or ‘torn down'. Surely, any manager using this type of language is serious about his job!

This article proposes a more philosophical approach and gently deconstructs, not demolish or blow up, the concept of silo mentality to show that they are not as evil as many managers believe.

Embrace functional silos mentality to deliver value

There is no proper definition of what a silo mentality is. A recent paper goes to the extreme and suggests that people who display a silo mentality are mentally ill.¹

Psychodynamically, silos represent the phallic characteristics of male dominance, submission and persecution. They are characterised by intra- and intergroup anxiety followed by the infantile and regressive defensive structures

On a positive side, functional silos are vertically aligned teams with experts in their respective fields. Silos shape expert knowledge communities that can reach consensus, make decisions and act efficiently and effectively. By embracing and nurturing functional silos, an agency's expertise can flourish.²

Pointing at silos to identify why an organisation is not optimally functioning is a way to blame somebody else for your problems. Instead of wielding the silo, managers should practice some introspection and think about how they can improve communication with other experts in their organisation. Don't blame somebody else for not wanting to cooperate with you, think of ways you can motivate them instead of using strong language and start demolishing, tearing down and blasting their silos.

Cilliers, F., & Greyvenstein, H. (2012). The impact of silo mentality on team identity: An organisational case study. SA Journal of Industrial Psychology, 38(2), 1–9.

Paulson, J. (2010). Embrace silos to deliver value. DM News, 32(17), 32–32.

Corporate Snakes and Ladders: A Career Simulator Board Game

Peter Prevos — Fri, 20 Jan 2012 15:18:05 +0000

The career path of a manager from graduation on her way to the boardroom is full of unexpected surprises. It might sometimes even feel like you are playing the ancient Indian board game of Snakes & Ladders, known to Americans as Chutes & Ladders.

At the Lucid Manager, we have created the ultimate career simulation with Corporate Snakes and Ladders to express the trials and tribulations of a professional career. Who will get to the boardroom first?

Career Simulator

The objective of the Corporate Snakes & Ladders is to navigate by rolling a die, from your graduation (the bottom-left square) to the boardroom (top-right square). On your career journey you are either helped or hindered by ladders or corporate snakes. This game is based on the articles on the Half-Hour MBA, which help you to become a Lucid Manager.

Studying to obtain an MBA and buying a new suit will certainly help you in your career. Be careful though of personality tests, you might give the wrong answers! As your career progresses you are expected to start multitasking but alas it does not make you more productive.

The secrets behind the corporate veil are lifted once you realise that perception is reality and that Generation Y does not exist, which helps you to manage your middle management stress, for which you are grateful.

At the end of the game, you might or might not enter the board room. The main purpose of this career simulator is to help you recognise the illusions of management. A business or any other organsiation is merely a human construct that has no objective reality.

Corporate Snakes and Ladders

Click on the image below to print the game and play our Corporate Snakes & Ladders career simulator to find out whether you will make it all the way to the board room.

Corporate Snakes and Ladders - a career simulator.

All the World's a Stage — Deception in Management

Peter Prevos — Sun, 18 Dec 2011 00:00:00 +0000

Deception in management is more common than we care to admit. Shakespeare already understood this more than four centuries ago:

All the world's a stage, And all the men and women merely players: They have their exits and their entrances; And one man in his time plays many parts.

Professional social network site LinkedIn has surveyed to analyse buzzwords in user profiles. It seems that almost everybody on LinkedIn is creative and effective. These are, however, vague statements as creativity and effectiveness are not fixed states of mind but variables on a sliding scale.

The use of meaningless buzzwords is pandemic across the globe, although there are regional differences. Professionals from countries with a high level of individualism prefer to be creative, i.e. have individual and original ideas. While in Spain, a country with a high tendency towards uncertainty avoidance, prefer to be perceived as 'managerial'. Most Italians are problem solvers, which is not surprising given the perpetual state of seeming disorder.

Deception in Management

Deception in management forms an integral part of being human. All the Deception in Management is as common as deception in the world outside the office. Our self is not an innate property of the person; it is carefully constructed. Sociologist Erving Goffman uses a theatrical metaphor, inspired by Shakespeare's lines opening this post. We use scripts, buy props and create backdrops for the roles we lay in society.

Professional life is, however, a particular case as the selves we create in the workplace are mostly very different from that which we are in personal experience. Sociologist Erving Goffman once wrote that deception is common among executives:

… blinding themselves and others to the fact that they hold their jobs partly because they look like executives, not because they can work like executives.

The prevalence of deception in our daily lives and at work implies that managers can learn from magicians about how to best present themselves. Work is, after all, merely a play.

The Subservient Manager and the Illusion of Hierarchy

Peter Prevos — Wed, 09 Nov 2011 00:00:00 +0000

One evening at the dining table (Based on a true story. The names have been changed to protect the innocent):

Hannah: "What is your job mum?"

Olyvia: "I manage a team of dentists."

Hannah: "So you drill holes in people's teeth?"

Olyvia: "No, I am a manager"

Hannah: "What is that?"

Olyvia: "I make sure my coworkers have everything they need to do their best possible work."

Management is the craft of achieving objectives vicariously, achievement through other people. The manager-employee relationship is de facto hierarchical. The idea of the manager to control workers was popularised by the Lucid Manager's mortal enemy, Freddy Taylor. Simply put, the manager controls resources and staff follow instructions. This obvious fact is, however, a great misconception of the true nature of the manager-employee relationship.

When President Nixon met Premier Zhou Enlai in 1972, he asked his thoughts about the French revolution of 1789. Zhou Enlai reportedly considered the question for quite some time before finally answering:

"It's too soon to tell."

Zhou Enlai was right. The ideals of the enlightenment of people as independent thinkers have after over two hundred years still not been fully realised. The struggle between the ideals of the Ancien Régime and the Enlightenment can also be seen in management theory. The Taylor inspired scientific view of management versus a more human-centred view is a recurring theme in management literature. At the Lucid Manager, we believe in the ideals of the enlightenment and proclaim a humanistic view on management.

The Subservient Manager

Managers are subservient to their employees. It is the subservient manager's task to select the right people, make sure they are provided with sufficient resources, have the proper knowledge and provide a safe working environment. The manager is also responsible for maintaining networks with external stakeholders. Every activity of the manager is aimed at enabling employees to get the work done effectively and efficiently. The manager makes sure that staff can provide value to customers. To refer to Chinese wisdom, Lao-Tzu wrote 2500 year ago:

The highest type of ruler is one of whose existence the people are barely aware.

Management Alchemy: The Philosopher's Stone of Management

Peter Prevos — Fri, 07 Oct 2011 10:00:55 +0000

Managers and alchemists have a lot in common. Alchemists look for the philosopher's stone to find wisdom, while managers seek their inspiration in theories. Much of business literature presents a form of management alchemy.

In management, there is a vast disconnect between the popularity of theories and their empirical evidence. Popular theories usually suffer from a lack of empirical validation, while empirically supported theories published in peer-reviewed management journals remain obscure and unknown.

In a recent paper, Mata Alvesson and Jörgen Sandberg lament the field of management studies is stronger in producing rigour than in creating exciting and influential theories.

The infamous Boston Consulting Group Matrix, which is taught to business students worldwide, has been called the "philosopher's stone of the consulting business". The BCG matrix has been used as a rationalisation to fire people or undertake a merger. The matrix legitimises action through symbolic references to the mystique of strategy.

Humbug in management is, however, not a recent development. Management guru Chester Barnard expressed it in 1938 as such:

I believe that a good deal of conflicting bunk is taught in these fields. This argues for improvement and development, not against teaching what can be taught. In the time of Newton, or even much later, a great deal of modern physics, and much that is fundamental in it, was not known, and for this reason perhaps a good deal of bunk was then taught in the field.

Management is historically speaking a very young field of endeavour. Formal studies of how people behave in a professional environment only started when Frederick Taylor analysed labourers logging pig-iron.

Management Alchemy and the philosopher's stone of management

The natural sciences are much older and have developed a rigorous method that ensures their success. However, in the early days of the physical sciences, even prominent figures such as Isaac Newton spent a considerable amount of time on alchemy and other occult studies in an attempt to find the Philosopher's Stone.

Whether this means that, several centuries from now, management theory is as successful as physics in controlling reality, remains to be seen. Management, strategy and marketing are inherently social sciences, and people are not billiard balls whose trajectories can be predicted and controlled.

The Philosopher's Stone of management is the art of understanding people. The key to understanding people lies not in the rigorous statistical analysis of questionnaires, but in the life experience of the manager.

Literature

Alvesson, M. and Sandberg, J., 2011. Generating research questions through problematization. Academy of Management Review, 36, 247–271.
Astley, W.G., 1985. Administrative science as socially constructed truth. Administrative Science Quarterly, 30(4), pp.497–513.
Chester Barnard (1938) The Functions of the Executive. Harvard University Press.
Owen, D., 1982. Those who can't, consult. Harper's, 265(1590), 8–17.

The Magician Manager: The Role of Deception in Business

Peter Prevos — Mon, 26 Sep 2011 10:00:32 +0000

Every manager would love to have a wand and make things happen magically. Although this vision is only a dream, managers do have a lot in common with magicians. Both the manager and the magician aim to create the world different from the one we know. Both the manager and the magician construct a new reality; the magician uses the stage, and the manager uses the workplace to frame their performance.

Another similarity is that many magicians carved out a market in the corporate sector by providing entertainment at Christmas parties and similar occasions. But the similarities don't stop here.

As an amateur magician, I collect academic journal articles about conjuring and found two interesting papers exploring the similarities between management and magic.

The Magician Manager

David Pollitt described how the management team of a large retailer was invited for a magic show as part of their professional development. Magicians follow rigid procedures to create the illusion of magic, and the management team were encouraged to do the same to achieve results. Magician Richard Pinner performed a Russian Roulette inspired trick to illustrate that in customer contact there is only one chance to get it right.

Professor's of management Joe Dobson and Terence Krell published a paper on how to use magic tricks to teach organisational behaviour. They use magic tricks in the classroom to show that withholding information, like a magician withholds the methods from spectators, can create a power difference. So-called forcing techniques commonly used by magicians are an illustration of the fact that our free will is more often than not bound and limited by the context in which we operate.

Although a magic wand is not a reliable management tool, these examples from the academic literature show that professionals can learn from magic as it provides valuable lessons in psychology.

Most importantly the magician's ability to distort reality is a reminder that our perception is fragile and that we should always find out the facts, rather than rely on perception. The biggest difference between a manager and a magician is that a magician manages perception to create the illusion of a new reality. Managers focusing on perception, in reality, will find that they are creating an illusion.

If you like to know more about magic tricks and how they relate to the normal world, including management, read my book Perspectives on Magic.

The Myth of Multitasking

Peter Prevos — Mon, 12 Sep 2011 00:00:00 +0000

A favourite buzzword heard around water coolers in offices spanning the globe is multitasking. Employers see the presumed ability to do more than one thing simultaneously as the hallmark of a great employee. This short article looks at the myth of multitasking.

People imagine themselves as multi-armed Hindu goddesses or gods of efficiency, aiming to manage their time better by doing many things simultaneously.

Unfortunately, multitasking is self-deception. In the words of psychiatrist Edward Hallowell,¹ multitasking is a mythical activity in that people believe they can do two or more tasks simultaneously, just as effectively as one.

The Myth of Multitasking

Neuroscientific research supports this practical knowledge. A neural network in the frontal lobe acts as a bottleneck of information processing that severely limits our ability to multitask. Not only do tasks take longer, but the quality is also reduced.

Multitasking introduces a switching cost which means that the brain has to adapt to the new task every time it switches. The switching time can be low, but can amount to as much as 40% of your productive time.

The switching cost depends on the cognitive load f the task. We are very adept at having a dep discussion while doing menial tasks like doing the dishes. But, watching a movie while also scrolling your phone will not do either task justice.

Multitasking in a Magic Show

What managers can learn from magicians and cognitive scientists is that we should focus on only one task at a time. Magicians are very adept at controlling our attention by running a dual narrative.

In this video, the late Dutch magic genius Tommy Wonder shows how people are easily deceived because their minds can only focus on one thing at a time.

Two Cups Routine By Tommy Wonder.

Hallowell, “CrazyBusy: Overstretched, Overbooked, and About to Snap!” (Ballantine, 2006).

Unfortunately, the feeble human mind cannot focus on more than one thing simultaneously. The myth of multitasking is no better illustrated than a magician’s ability to deceive people, wonderfully demonstrated by Tommy Wonder in the video below. Magicians use techniques based on our limitations in attending to multiple things simultaneously to create the illusion of magic.

The Golden Rule of Recruitment: You get the employees you deserve

Peter Prevos — Mon, 05 Sep 2011 06:30:53 +0000

Recruitment of new people or can be a stressful experience. Many organisations maintain extensive procedures to try to find the right person for the right job or even hire specialised consultants to do the job for them. Why go through these troubles if there was a golden rule of recruitment?

They ask strange questions that no reasonable person would ever dare to entertain: "What are your three trademarks?", "What are your biggest mistakes?" or "What is the meaning of life" and "What is the airspeed velocity of a laden swallow?". Some even resort to pseudo-scientific personality testing to throw some insights into these strangers across the table.

The problem recruiters have is that it is a lot easier not to hire someone than to fire them later, which leads to complicated processes to reduce this risk. Job interviews are thus a bizarre environment that often bears no resemblance to a real professional situation. The fear of taking a risk with a person and a lack of self-confidence in their people skills motivates recruiters to resort to pseudo-scientific tools and hiding behind bizarre interviewing techniques.

The Golden Rule of Recruitment

Particularly in a customer service related position a person's ability to understand customers is more important than the results of a personality test or the answer to weird questioning. Asking irrelevant questions only motivates the applicant to bend the truth.

Recruitment methods should as much as possible be normal human interaction as ultimately every company gets the employees they deserve.

No matter how ritualised the interview process, the Golden Rule of Recruitment remains: You get the employees you deserve.

Misdirection in Presentations: Magic Shows in the Boardroom

Peter Prevos — Thu, 09 Jun 2011 00:00:00 +0000

In a blog entry for Harvard Business Review, Jerry Weissman argued that misdirection is for magicians, not for presenters. Weissman writes that misdirection has no place in business presentations because a presenter needs to direct the attention of the audience to the screen, not distract them.

While distracting your audience is indeed not a good presentation technique, managers can learn from magicians to perform better presentations. Business people that perform magic have been found to be better public speakers than other presenters.¹ This article shows how managers can use misdirection for presentations.

Misdirection in the Office

Misdirection is one of the few words of the specialist magician’s vocabulary that have made it into everyday speech.²

Misdirection is an essential technique in sleight of hand conjuring used to ensure that the audience cannot identify the causes of the actions of the magician. While the magician hides a ball in her left hand, she focuses the attention of the audience on her right hand so that the ball remains outside the field of awareness of the spectator. Some magicians no longer use the term misdirection but prefer ‘attention management’ to indicate that that the audience is directed towards the narrative of the magic trick instead of the technique.

Techniques to distract people from the real cause of things is not only used by magicians but in all forms of the performing arts. Some scholars even argue that misdirection is an essential skill in everyday human interaction.³

Erving Goffman described the interaction between humans as a theatrical metaphor and emphasised the importance of managing the impressions that people have of each other.

Goffman writes that we are all actors in a play of our own making; we have scripts, props and costumes to portray how we want the outside world to perceive us. We require misdirection in our daily and professional lives to construct who we are by our ideal self. One of the ways professionals communicate their corporate positions communicate is through clothing and managers are, according to Goffman:

… blinding themselves and others to the fact that they hold their jobs partly because they look like executives, not because they can work like executives.

Misdirection is as such a normal aspect of our lives and probably more so in the office. Working life is an artificial reality where people wear uncomfortable clothes to misdirect the attention away from their true self. Goffman’s ideas might seem a pessimistic interpretation of human interaction, but deception is part of life because social reality is subjective.

The manager has become an archetype of contemporary society. The manager is the prime example of homo economicus, the rational thinking problem solver that always seeks to maximise benefit, independent of social reality. This thought is, however, only an ideal that many of us strive to and we all play a role in the great theatre of life. Misdirection in Presentations

Business presentations are a form of theatre even more so. Brief monologues designed to convince the listener that the presenter’s ideas should be implemented. Misdirection is a valid and natural way to create the ideal self of the lucid manager and persuade people with your presentations. This post is, however, not an invitation to deceive in business presentations. Misdirection only works when it is subtle and skillfully applied.

Public speaking fills many people with fear. Jerry Seinfeld once joked that:

“… people’s number one fear is public speaking. Number two is death. This strong statement means to the average person that if you have to go to a funeral, you are better off in the casket than doing the eulogy”.

Seinfeld on public speaking.

A good presenter needs to manage the attention of the audience away from the unimportant aspects of their presentation and focuses the listener on on the narrative.

In the Powerpoint era, beautifully designed slides can be used to give credence to an otherwise weak argument. The summarised and seemingly well-flowing information hides gaps in knowledge and insecurities of the presenter.

For professionals, public speaking is an essential skill which unfortunately not many of them excel at. We all have sat through death by Powerpoint; bombarded with slides and poorly presented disjointed information. What Managers can learn from Magicians

In my opinion, presentation skills are essential to succeed in any organisation—business presentations are a form of theatre. In this post, I will explain how a book favorite among magicians, The Five Points of Magic by Spanish performer Juan Tamariz—can be used to teach professionals about presentation skills.

Below are some tips from the book that apply to both magicians and public speaking.

The Eyes

Eye contact is the most vital tool to connect with the audience. Don’t only look at the first row. Sweep your gaze like a fan across the spectators, giving everybody some personal attention.

Eye contact in public speaking.

The Hands

The hands are the most critical tool of the magician, and in business presentations, they usually perceived get in the way. But the hands can communicate almost anything. We should use our hands to point out things, present objects and emphasise the communication. Think about how you use your hands other than a means to hold your laser pointer.

The Voice

Imagine an elderly lady, who is hard of hearing, sitting at the back of the room. Dedicate the performance to her and project your voice to the last row.

Public speaking - project your speech

The Feet

The best place to stand is centre stage, facing the audience. Don’t hide behind the lectern or turn your back to the audience. This positioning is essential to be able to make good eye contact.

The Body

Body language is our subconscious means of communication. In theatre, and thus also in public speaking, we need to be aware of this type of communication.

In Conclusion

This post is only a glimpse into the vast array of literature on theatrical performances that can be applied to public speaking.

Next time you need to do a presentation, view it as a theatrical performance and follow the five points of public speaking.

One last tip: whatever you do, never imagine your audience naked, at best it will get you distracted.

Endnotes

Davids, Meryl. Tricks of the Trade. The Journal of Business Strategy 15, no. 3 (1994): 67.

A.S. Fleischman (1949), Words in modern magic, American Speech (24)1, pp. 38–42.

Erving Goffman (1959), The performance of self in everyday life. Anchor Books.

Buzzword Bingo! Play this game at your next meeting

Peter Prevos — Fri, 13 May 2011 18:37:26 +0000

Managers use an esoteric language to describe very common activities. Anyone who works in an office will have heard some of the weasel words and buzzwords around the meeting table. Some of these words use evocative metaphors to express something quite mundane.

A helicopter view means that you are viewing the whole topic, and blue-sky thinking is just another word for daydreaming. Some of these words are used to give concept different meanings. A restructure is called a realignment or water utilities that use exotic words to describe recycled sewage.

Introducing Buzzword Bingo

Some of the more grounded people in the office, the lucid managers, devised a hypothetical games called Buzzword Bingo, also called Bullshit Bingo as perhaps the word buzzword is itself a buzzword that does not say it like it is. I have never met anyone who has actually played the game but is surely is a nice thought to sit in a boring meeting and shout BINGO as soon as your card with buzzwords is full.

Play Buzzword Bing

Play Buzzword Bingo, the most popular past time during boring meetings. The list of words you could use is endless. We hope to one day develop an application that can automatically detect buzzwords and shout "Bingo" n the middle of a meeting. The image below is an example of a card.

Buzword Bingo!

An Alternative Risk Matrix Template: Welcome to the Matrix

Peter Prevos — Wed, 20 Apr 2011 00:00:00 +0000

If Einstein were a management guru, he perhaps would have said that managers don't play dice, but how wrong he was! All of management is about controlling risk. If there were no risk, there would be no need to manage anything because positive outcomes would be guaranteed. This article presents an alternative risk matrix template.

God doesn't play dice but managers do.

Risk management is a complex topic that is all about the dreaded concept of statistics. Most managers don't understand statistics and need something simple to help them through the necessary risk management sessions. They use a risk management template to make the topic understandable for the not so mathematically inclined.

Around the world, businesses are using simple matrices to manage risk. People gather around a table and argue whether a risk is low, medium or high. In most cases without proper consideration of the actual statistical issues.

Risk matrices are a poor proxy for real risk management and suck up a lot of resources to 'manage' trivial risk.¹ Risk matrices provide false confidence in the actual risk profile and, more often than not, produce outcomes that do not add any information to the situation other than the ability to provide colourful overviews. The best outcome of any risk matrix exercise is that at least all risks have been discussed and acknowledged. The actual outcome of the matrix rarely has any bearing on the way the risk is managed; it is merely a category.

A risk matrix is a security blanket for higher management and the board to feel secure that the rest of the organisation knows what they are doing and will not expose the organisation to unacceptable risks.

Alternative Risk Matrix Template

At the Lucid Manager, we have created an alternative risk matrix that you can use to inform your management decisions. We bring risk management to life without boring and meaningless numbers, but practical device. Download this picture, assess the likelihood and consequence of your risk and act by this schedule. Success at your next risk management session is guaranteed!

Lucid Manager Risk Matrix.

Cox, L.A. (2008), What's Wrong with Risk Matrices?, Risk Analysis, (28)2: 497–512.

The Manager's New Clothes: The Magic of the Business Suite

Peter Prevos — Sat, 19 Feb 2011 18:03:52 +0000

The manager in his or her suit has become an archetype in professional life around the globe. Even at international meetings, where people of various cultures gather, managers all wear the same type of clothing, only displaying minor variations in style and colour.

Business suits have of course no practical purpose but instead, convey social meaning. The suit has become a symbol of power, and a means to demarcate the white from the blue collars. Using clothes and other objects to communicate meaning to other people is a natural aspect of being human. An immutable law of marketing is that we don't buy stuff for what it does, but for what it means.

Early in my career, I was working on a dredging site in Bangladesh, wearing my comfy heavy metal t-shirt and jeans. I was unexpectedly asked to present to head office executives visiting from the Netherlands. Blissfully unaware of my lack of appropriate attire and ignoring their visible scepticism towards my expertise I was able to convince them of my recommendation.

It is of course not a secret that the relationship between the clothes we wear and our actual ability to be a good manager is not a necessary one. Sociologists Erving Goffman, who analysed human interaction from a theatrical perspective, wrote more than half a century ago:¹

People holding corporate positions are blinding themselves and others to the fact that they hold their jobs partly because they look like executives, not because they can work like executives.

In the field of consumer behaviour, the clothes we buy are often seen as the result of our lifestyle, demographics and other variables. Sociologists, however, have a reverse logic and look at the clothes we wear as the cause of the behaviour. Research has confirmed that we use objects such as clothing to compensate for actual ability to act in a particular role.

It has been found that MBA students less likely to be successful in professional life (based on grade averages) are more likely to look the part.²

The Manager's New Clothes

With this in mind, it is interesting to note that quite often the smartest people are portrayed in movies as eccentric, deviating from the expectations, but accepted because of their abilities.

Clothing as a means to communicate actual and aspired social status is part of what makes us human, and after my experience, I quickly learnt to adapt to the expectations of professional life. The best way to end this post is with the words of the bard:

All the world's a stage, And all the men and women merely players; They have their exits and their entrances; And one man in his time plays many parts … [note]Shakespeare, As You Like it).

Erving Goffman (1959) The presentation of self in everyday life, Penguin, London.

Solomon, Michael R.: The Role of Products as Social Stimuli: A Symbolic Interactionism Perspective, The Journal of Consumer Research 10(3), volume 10, 319–329, 1983.

A new Methodology to Assess Management Tools

Peter Prevos — Thu, 20 Jan 2011 20:32:04 +0000

The science of business, just like any other academic field of endeavour, seeks to understand the nature of reality. Scientists judge a theory not only on its ability to predict the future but also on whether it can be considered elegant. In the physical sciences, for example, Stephen Hawking admits that he longs for the day when nerds can wear t-shirts with a straightforward formula that explains everything in the universe.

The Science of Business

Business theorists are also drawn towards the aesthetics of their thoughts. The textbooks slaved over by MBA students all over the world are littered with two-dimensional matrices that purportedly explain everything from what business strategy to use or whether the divest whole business units. Famous examples are the BCG Matrix, Igor Ansoff's strategy matrix, the ubiquitous SWOT analysis, Porter's Generic Strategies and so on. Some more adventurous thinkers take it a step further and postulate slightly more complicated diagrams, such as the GE-McKinsey Matrix or Porter's Five Forces and of course his Diamond of national competitive advantage.

It is a comforting thought that the unpredictable nature of business reality can be expressed in simple two-dimensional diagrams that even the least intelligent manager can reproduce to impress his peers and superiors with.

Since I started my journey into business theory several years ago, it surprised me how much academic literature on business is separated from the popular books that managers read and apply in their daily work. A great moat surrounds the ivory tower of academic business schools. Most managers spend considerable time chewing the fat with academics when they attend university. But, as soon as they leave, there is little further interaction. The word academic is mostly used in a negative sense as an indication of something being of no practical use.

The Lucid Manager would not be a real business blog if we did not introduce our meta-matrix or ‘über-matrix' of the business sciences and management tools. So, let's take the blue pill and enter the world of the Management Theory Matrix, henceforth known as the LM (Lucid Manager) Matrix.

The first dimension of the LM Matrix is the extent to which theory is corroborated in reality. In other words, how much empirical evidence is available to support the theory. The second dimension to consider in the LM Matrix is the popularity of the theory. The popularity of a model can be easily tested by reviewing the best-sellers lists of internet bookshops and reviews in popular management magazines. To visualise the matrix and provide some metaphors, a zoological approach is used in the LM Matrix.

This method is inspired by the ubiquitous BCG Matrix and DiSC personality profiling. In the bestiary of business theories, we can distinguish four animal kingdoms, dodos, owls, rabbits and unicorns, each with their unique characteristics.

Management Theory Matrix (HTC Matrix).

Management Tools Matrix

Dodos

When a management theory has a shallow empirical foundation and is neither very popular, it can be called a dodo. Just like the now extinct ugly flightless bird from the island nation of Mauritius was hunted to extinction by Dutch sailors in the seventeenth century, these theories are not able to withstand the evolutionary forces of social selection by managers and scholars.

Although the father of what we now call management science, Freddy Taylor, who himself was killing the dodos of his time, proclaimed to base his work on rigorous measurements of reality. More recent research of his private notes shows that this is more myth than reality. See Matthew Stewart's excellent book The Management Myth, which inspired to write this post. Taylorism and Scientific Management is thus an example of a dodo. Although it has spawned many modern theories, Taylor's original thought has fortunately perished.

Owls

Academic journals of management theory are brimming with valuable research, carefully undertaken and analysed using deep thought and sophisticated mathematical models. Prestigious journals rigorously select papers that can demonstrate a high level of empirical validation and predictive power.

The complexity of academic thinking is, however, not popular with managers. Most people in business are not comfortable with convoluted mathematics and abstract structures proposed by scholars. The ancient Greek goddess of wisdom Athena is often depicted with an owl perched on her head. These theories are as such called owls because of their great wisdom. Alas, owls are shy creatures that prefer the darkness of the night and are rarely seen in boardrooms and management workshops.

Bunnies

Most theories that win the popularity contest in the business ideas market dramatically lacking in empirical validation. Managers blindly accept Maslow's Hierarchy of Needs as a psychological truth and try to emulate the 7 Habits of Highly Effective People. They are called bunnies because they are cute and cuddly on the outside, but breed uncontrollably and can cause irreparable damage to the environment; burrowing holes and undermining the foundations of organisations.

Some authors, such as Jim Collins and his immensely popular book Good to Great, hide behind a veil of pseudoscience and undertake shallow research without the statistical rigour required in science. But his work is littered with tautologies and is lacking in critical analysis.

Unicorns

What would be expected the Cash Cow of management theory are those ideas that are corroborated with actual business practice and are indeed practised widely, are unfortunately as elusive as the mythical unicorn. But the unicorn stands for a hope of better times ahead.

Maybe one day a new age in business will e heralded, as was initially proclaimed by Taylor, and millions of workers around the world can sigh of relief when they are liberated from the dodos and owls, instead of riding unicorns towards the rainbow.

Epilogue

But what does this all mean you might ask yourself. The simple message that the LM Matrix proclaims is, in the words of Immanuel Kant: "Sapere Aude!", or in everyday language, dare to think.

A business theory is, in essence, social theory, and no aspect of reality is so difficult to capture in theory as the behaviour of human beings. Good business science is complicated and often requires deep thought and self-knowledge to be able to understand business. As a social science, a business can not be explained away in simple theories and matrices. Understanding comes with wisdom and insight that can just not be drawn in two-dimensional diagrams.

The Pitfalls of Culture Change: Why most programs fail

Peter Prevos — Mon, 27 Sep 2010 00:00:00 +0000

Culture change is a favourite past-time among contemporary managers. The promise that many management books make is that changing your organisation's culture will lead to organisational success.

Managers eager to impress their directors will invariably implement a cultural change program with the anticipation that it will increase productivity, profitability or any other noun ending in -ty. This promise first to change themselves on the premise that successful organisations all have a 'good' culture.

The idea that a good or healthy culture will improve business results is also logically nonsensical. The claim that a healthy organisational culture will improve performance is tautological. Any qualifier of the word culture will inevitably be self-referential.

Interestingly enough, most culture change programs fail!

The reason most cultural change programs fail is that culture is an epiphenomenon of human interaction, which means that culture as such does not exist. Culture is a mental construct; it is the effect of something and can not be the cause of anything. The only place where culture changes are always successful is in microbiological laboratories, where nerdy scientists in lab coats poke around in Petri-dishes and conical flasks to develop medicine, biological warfare or just because they need a job. Back to human cultures.

Culture is the result of a whole range of phenomena, such as people's values and beliefs. Managers more often than not focus on these aspects of culture. They try to change the values and beliefs of their staff by spouting 'inspiring' rhetoric and professional development programs.

Culture is an epiphenomenon

Corporations are not democratic organisations and rely on hierarchical structures. Culture is thus driven from top to bottom and can therefore only change to the limit of the values and beliefs of the managers in charge. It is because of this that most textbooks on cultural change fail. To change a culture, managers need first to change themselves!

Because culture is the effect of phenomena, it can not be the cause of anything - including corporate success.

How to implement culture change

There are aspects of culture that can be modified quite easily. Other phenomena that cause culture are rituals and ceremonies, stories and legends and material objects. This description might sound like things that you only find in tribal societies, but all corporations have them.

Rituals and ceremonies are expressed in the way meetings are conducted, and birthdays are celebrated and everything in between. Stories and legends relate to the history of the corporation, and material objects are the tools we use and the office we work in.

If a manager wants to change a 'culture', then these phenomena are the starting point. Change these, and the culture will follow. The best example to illustrate this is the often discussed Google offices. By placing people in the right environment, they will display the proper behaviour. Supermarket designers use these principles very successfully. Telling appropriate stories will create a sense of collective and conduct the corporate rituals in the right way will act as an example of the desired behaviour.

The simple message is: don't try to change a culture, try to modify the phenomena that cause the culture. Also, when implementing culture change, make sure you don't erase the creativejuices of the organisation by promoting normality and fighting against positive deviance.

Free Personality Test for Professionals: Forer Workstyle Analysis

Ian Watson & Prevos — Mon, 30 Aug 2010 00:00:00 +0000

Welcome to the Forer Workstyle Inventory, a free personality test designed for professionals. Please take place on our virtual divan and answer the twenty-two questions below to find out what your Forer Workstyle Inventory is.

Many companies use personality testing in their recruitment processes. Rather than relying on unreliable human intuition, personalty testing adds a scientific certainty to recruitment. A well-designed personality test inreases your self-knowledge because the questions help with introspection about your patterns of behaviour.

Free Personality Test

Many personality tests are protected intellectual property and can cost a lot of money to do. The Forer Workstyle Inventory is fully open source and you can read all about how it is designed and statistically validated. Our analysis proves that this test is as good as commercially available tests.

The Forer Workstyle Inventory helps professionals to better understand their personality by asking 22 seemingly unrelated questions. This test is specially designed and our objective is that this will be the last personality test you will ever need to take.

Remember, there are no wrong answers, we don't collect any identifiable information, so what are you waiting for?

Click on the icon to go to the test.

Esoteric Change Management: Marketing to change employees

Peter Prevos — Fri, 20 Aug 2010 00:00:00 +0000

Just as a new house owner likes to change the paint colour, new businesses practice change management. The literature shows that most change management processes do not achieve the objectives they seek and a whole library of books has been written about the best ways to create and sustain change.

Managing change is more often than not about changing the behaviour of people. Management speak uses words such as alignment, creating buy-in and other bendable learnings. However, as soon as the word 'change' is mentioned in a workplace, people will raise their defensive shutters and try hard to keep doing what they have always been doing.

One aspect of management where attempts to change behaviour is very successful is marketing. Good companies can manipulate the attitudes and behaviour of consumers so that they buy their product. Why does it work in marketing but not so much in management?

Change management strategy is more often than not exoteric. This perspective means that all details of the approach are revealed to the subjects of the change. Change managers, and more often than not consultants, openly explain how they will change behaviour.

Esoteric change management

Marketing managers are a bit more devious about their motives and use esoteric change management techniques to change the behaviour of consumers. Some advertisements openly admit to the methods they use to change the behaviour of consumers - the best example is a Molson beer ad from some years ago:

Molson beer advertising.

Maybe change managers should take a leaf from the book of marketing and use the sophisticated sociological and psychological techniques employed to convince people to change their buying behaviour.

This might raise the question whether it is ethical to change people's behaviour esoterically. But all I have to say to that is that we change our behaviour based on our interaction with other people all the time. The anti-marketing crowd often underestimate the intelligence of consumers, which they portray as will-less victims. Creating change, whether in marketing or management is about creating an environment in which people feel comfortable to change, can identify with the proposed changes and believe that the change will provide them with benefits.

Deviant Behaviour as a Key Selection Criterion

Peter Prevos — Fri, 16 Jul 2010 12:00:35 +0000

Would you like to work on the front lines of contemporary management?

The Lucid Manager is hiring, and we are looking for people that don't fit the culture of their current work and have difficulty being aligned with corporate goals. At the Lucid Manager, we believe that the only thing you have to be brought into line with is yourself.

We acknowledge that deviant behaviour and taking calculated risks is the foundation of innovation. We, therefore, look for independent critical thinkers who can add value.

If this were a genuine recruitment add, it would have been a very odd one indeed. Most companies are looking for so-called alignment and matching cultural values. At The Lucid Manager, we believe that this will lead to a severe lack of innovation.

The major corporate collapses and scandals of the recent years have caused a tightening of corporate governance, and many organisations have moved away from open models of leadership that value self-initiative to more regimented models of management.

Even though the western world is waging war to spread democracy around the globe, the one aspect that dominates most people's lives, their workplaces, are ideally meritocracies but are mostly more like dictatorships. Most organisations are managed through clear hierarchical lines, and people are not very likely to go against the grain.

Deviant Behaviour is neccesary

Research shows that employees do not only remain silent because of a fear of retribution but also because it is perceived as a waste of their time. This silence creates psychological tension and cognitive dissonance and eventually less commitment to organisational goals.¹

Organisational deviance is, however, a significant source of innovation. Without the freedom to make mistakes, there can be no learning. The current wave of tightened corporate governance leads to the silencing of dissenting voices and pruning of innovative actions. The ultimate consequence of this is the impoverishment of management practices.

Notes

Detert, James R., Burris, E. R., & Harrison, D. A. (n.d.). Debunking four myths about employee silence. Harvard Business Review, 88(6), 26.

The Virtues of Nepotism: Building strong organisations

Peter Prevos — Fri, 09 Jul 2010 00:00:00 +0000

Nepotism in the workplace is considered by many to be one of the great sins of Western culture. Over the past century, Western society has been levelled by removing class distinctions and shaped to create equal opportunities for everybody, regardless of race, religion, gender. Family relationships are not supposed to play a role in any one's chances of success. The Wikipedia definition of nepotism is:

Favouritism granted to relatives or friends, without regard to their merit.

When Ian and I researched HR practices in Vietnam, we came across thought-provoking recruitment practices. From our interviews with local managers, it became clear that using family networks is an accepted recruitment source for staff.

From our data, we formed the hypothesis that recruitment in countries with a collective nature, such as Vietnam, is primarily conducted through traditional social networks, not the electronic type. This collectivism contrasts with the developed world, with a high level of individualism, where, especially in the government sector, a level playing field is created by publicly advertising positions. Companies in Hanoi use family networks as a primary recruitment pool.

Although Vietnamese practices are very much like the dreaded nepotism in the workplace, some interviewees clarified that although they use family networks as a primary recruitment source, within that pool of people, the selection is nevertheless based on merit.

The benefit of this nepotism in the workplace is a strong organisational culture. A training manager of a large company told us that they have many teams in which several generations of one family work together and that this creates strong culture bonds and a sense of common purpose within the organisation.

Nepotism in the workplace

This sense of shared purpose is considered a holy grail by most organisations in the developed, individualistic, world. Many activities are aimed at 'aligning' people with the common objectives of the organisation. But given that most businesses are a grab bag of people, working together more by change than by common purpose, this has proven to be an elusive goal.

Research in Australia has shown that people recruited through anonymous sources such as newspaper advertisements missed almost twice as many days as those hired through other sources, such as employee referrals.

[note]Breaugh, James A. (1981) Relationship between recruiting sources and employee performance, absenteeism, and work attitudes. Academy of Management Journal 24(1): 142–147.[/note]

This research underwrites the importance of using traditional social networks as a source of recruitment.

Human beings are inherently social creatures, and we like to spend our time with people we enjoy spending time with. Within that frame of reference, we are biased towards relatives. One of the primary reasons many people don't enjoy work is not because of the work itself but because of the people they are forced to socialise with.

Open recruitment processes aimed at creating a level playing field are problematic, and many organisations use abstract tools, such as personality tests, and reference checks to create the illusion that recruitment is a stoic rational process.

Next time when hiring people, look around your immediate and extended social circle and see if there is anybody you would like to work with that can potentially do the job. The moral of the story is: nepotism in the workplace is not inherently evil, as long as the final selection is based on merit.

Becoming an Entrepreneur: Walking Through the Valley of Darkness

Ian Watson — Sat, 03 Jul 2010 00:00:00 +0000

In Australia, the term ‘entrepreneur' has a very mixed heritage that may be responsible for discouraging others from embarking on a new enterprise. Bond and Skase are central to many Australians' view of an entrepreneur and they, Bond, Skase and Entrepreneurs are often cited with venomous derision; so much so that it has even generated the straight-to-video release of equally dubious movies such as Let's Get Skase.

Additionally, many Australians experience a sense of schadenfreude in watching successful public figures fall from grace, even going so far, at times, to assist their fall, in a cultural phenomenon known as the Tall Poppy Syndrome. The Tall Poppy Syndrome is a social levelling phenomenon, related to envy, that is well-known in Australia and New Zealand (Feather, 1989; Mouly and Sankaran, 2002).

Against the backdrop of failed entrepreneur pariahs and a social phenomenon acting to drag the successful toward mediocrity, it can be daunting for the inspired would-be Australian entrepreneur to act on their ideas; particularly because entrepreneurism, despite the bad press entrepreneurs may have received, is often a force for positive change within society.

Let's Get Skase.

Entrepreneurs as contributors

Understanding whether or not you would like to become an entrepreneur greatly depends on what being an entrepreneur means to the individual. The scholarly definition of entrepreneur and entrepreneurism has seen a significant evolution over time. Daniel Wren, in his excellent examination of the History of Management Thought (Wren, 2005: 42), describes the use of entrepreneur, or more literally the word 'undertaker' by Richard Cantillon in 1755 as anyone that bought or made a product at a certain cost to sell at an uncertain price. This definition encompasses almost all those engaged in any commercial enterprise.

Since Cantillon's definition, the distinction between the entrepreneur and the manager has further evolved, possibly as part of the academic drive to develop conceptual dichotomies. Entrepreneurs are seen as those that drive innovation whereas the manager is primarily engaged in imitation (White, 2004).

The view that the entrepreneur is a source of innovation is one presented and supported by the often-quoted and well-regarded Austrian economist Joseph Schumpeter, that the role of the entrepreneur is to drive creative destruction; that is, to reform or revolutionise (Petrakis, 2005; Turner, 2009). The necessity for entrepreneurial activity to be creative or innovative has also led to the conclusion that small business, previously thought to be synonymous with entrepreneurism, need not be entrepreneurial (Carland et al., 1984).

The role of the entrepreneur in creating jobs and consumer value has also been described in great detail, particularly by Peter Drucker who goes on to describe the activity of the entrepreneur as someone that always searches for change, responds to it, and exploits it as an opportunity (Drucker, 1985: 28).

Entrepreneurs take on risks

When the activities of entrepreneurs are watched from afar though media reports it may appear that entrepreneurs are people that take on very large risks. This apparent propensity for taking on risk has been extensively described in the literature (for a summary see Petrakis, 2005). However, studies have not conclusively confirmed that entrepreneurs engage in greater levels of risk-taking behaviour than non-entrepreneurs (Brockhaus, 1980) and for a review and summary of other studies see Busenitz, 1999).

If entrepreneurs, successful or otherwise, make the decision to act upon their innovative ideas despite the prevailing depressed economic conditions, what can the non-entrepreneur learn from the experiences of entrepreneurs to gain the audacity to transition from non-entrepreneurship to entrepreneurship?

This essay seeks to examine two Australian entrepreneurs; Sidney Myer and William McPherson to argue that the prevailing economic conditions, boom or bust, provides an opportunity for the astute entrepreneur.

Additionally, it will be argued that lessons may be learnt from the two examples of entrepreneurs so that the non-entrepreneur may take that walk through the ‘valley of darkness' to emerge a successful entrepreneur on the other side.

Simcha Baevski (Sidney) Myer (1878–1934)

Simcha Baevski was born in Kritchev, Belarus, in 1878, the last of 11 siblings, his mother Koona Dubrusha who ran the family's drapery business and his Father, Israel, a scholarly Talmudist (Lifiman, 1999). After arriving in Australia in 1899, he adopted the name Sidney Myer and, with his brother Elcon, opened a small store in Bendigo, Victoria and began door-to-door sales of fabric and clothes to country housewives (Lifiman, 1999). His attitude, charm and enthusiasm, despite the initial language barrier, led to relatively rapid success and he moved his business to a larger store in Bendigo where he worked on building and improving the Myer Emporium.

He committed himself to world travel to make business contacts, understand emerging fashion trends and marketing methods and eventually took a large, but calculated risk in buying Moffat's Drapery in Melbourne (Anonymous, 1922). Sidney, coming from a background in which scholarly pursuits were valued, became a benefactor of educational and health facilities during the Great Depression and, being an amateur actor, he also became a great supporter of the arts (Lifiman, 1999). He was equally generous to his staff, providing paid holidays, staff share offerings and even providing an elaborate in-store hospital (Hyslop, 1986). He also established the Myer Woollen Mills in Ballarat to deal with difficulties with imports of some of his lines of products (Neil, 1920).

Following his untimely death in 1934 (Anonymous, 1934), Sidney Myer's legacy is one of courage and philanthropy and would most suitably fit within the Great Person school of entrepreneurism described by Cunningham and Lischeron (1991).

William Murray McPherson (1865–1932)

William McPherson was the son of an iron merchant who inherited his business concerns after his father's death in 1888 and his brother's death in 1896 (Patrick and Hamer, 1986). William received a six-year apprenticeship to a metal merchant and machinery import company prior to his inheritance, giving him a good understanding of that business. In later years he, among others, established the Acme Bolt Company which he owned outright by 1905 (Patrick and Hamer, 1986) which eventually became McPherson's Pty Ltd.

His educational and family background provided the basis for his entrepreneurial activities maintaining and growing the business during the Great Depression he did this through a shrewd business manner and an aversion to debt. Throughout his role as a businessman, he interviewed every job applicant and, after going on to serve as Treasurer, and subsequently Premier of Victoria. He ensured that his staff were treated well; providing them with lunch facilities, share offerings and bonuses at a time when this was uncommon (Patrick and Hamer, 1986). William McPherson's profile fits best with the Managerial School of entrepreneurism (Cunningham and Lischeron, 1991).

Defining Characteristics of Entrepreneurs

From the two case studies, and the observations of Peter Drucker (Drucker, 1985), it appears that change is the fuel of entrepreneurs. Though change is all surrounds us all of the time, it takes skill to identify the opportunities offered by that change. To be able to identify change, the above case study examples constantly searched it out. They believed in intellectual improvement and pursuits often travelling around the country or around the world to find new ideas and fresh perspectives.

It may be argued that being politically connected may also foster entrepreneurial activity, as William McPherson certainly had a very close affiliation with politics. This may provide the appearance that it's not what you know but who you know, it could be argued that politics is a profound source of change and being near to and in constant communication with the agents of change means that the entrepreneur is more likely to be able to identify a change in the general environment.

To respond to and exploit an opportunity, it is essential to have a great deal of support. The entrepreneurs above sought out that support from several sources to achieve their goals. They required a support network of families and friends to help guide their values, provide them with initial skills, give them encouragement during times of stress and to cheer them on when they were winning. They required the support of their customers, which they achieved by identifying their needs and meeting them with innovative or more efficient goods and services. They also depended on their staff to ensure that their customers are well looked after, and both Myer and McPherson demonstrated this example in their innovative approaches to valuing their staff. They also needed the support of the community in which they operate, and the aforementioned entrepreneurs are exemplars of not only corporate social responsibility but corporate social benevolence.

It is also possible that entrepreneurs identify and diagnose opportunity differently. While the research for two of the case studies cannot definitively provide an answer to how they identified an opportunity, in each case the next step was to be willing and able to act upon the findings of an opportunity diagnosis (Pech and Cameron, 2006). It is this willingness to take that leap of faith that requires the convergence of a number of factors based on personal attributes of the entrepreneur such as abilities, attitudes, skills and knowledge. It also required an understanding of the environmental obstacles and opportunity factors affecting the new venture such as cultural and community acceptance, social, political and environmental shifts, and resource availability (Pech, 2009).

Key differences between entrepreneurs

The two entrepreneurs cited above came from different educational backgrounds. One started his own enterprises while the other modified the activity of existing enterprises that was inherited. In one case there is a clear example of where the entrepreneur had a good understanding of the need for someone that complemented their own business skills; such as Lee Neil's management skills supporting Sidney Myer. It would appear that the differences outnumber the similarities, which may be of comfort to the non-entrepreneur looking toward embarking on an entrepreneurial enterprise.

Becoming an Entrepreneur

The decision to take the leap and become an entrepreneur is a daunting one, a walk through the valley of darkness as suggested in the title, but each successful entrepreneur has made this journey by being prepared with a map and a torch (a good understanding of their industry and customers), taking each small step at a time, surrounded by supportive family and friends, with enthusiasm for the journey itself.

For a non-entrepreneur to make the transition to entrepreneur, based on the case studies and literature cited in this essay, it is recommended that you start learning to think what no-one has thought yet to identify opportunities but then develop the decision-making skills to evaluate and then map out a way to bring ideas to life. This may be achieved by:

Finding an opportunity that you are passionate about or develop a passion for the opportunity you find.
Developing the abilities skills and knowledge necessary to run a business.
Maintaining a high awareness of change and remain in frequent communication with change agents.
Being aware of the actions of potential competitors.
Enlisting the support of your loved ones and friends.
Understanding your skills and limitations and partner with those that complement your skills.
Planning and mapping out how you will develop the idea and then start the business; a business plan may assist this (Stutley, 2007).
Starting small but plan to grow.
Maintaining a lookout for new opportunities while remaining wary of new threats.
Committing yourself to self-improvement and education and
Being mindful of the support, you receive from your customers, staff and the community and ensuring that you provide support in return.

References

Anderson, F. (2001) Entrepreneurism is not a dirty word. The Courier Mail : 29.
Anonymous (1922) Large Drapery Merger. Argus: 32.
Anonymous (1934) Sidney Myer: Sudden death in Melbourne. The Canberra Times: 1.
Brockhaus, R. H. (1980) Risk taking propensity of entrepreneurs. Academy of Management Journal 23(3): 509-520.
Busenitz, L. W. (1999) Entrepreneurial risk and strategic decision making: It's a matter of perspective. The Journal of Applied Behavioral Science 35(3): 325–340.
Carland, J. W. et al. (1984) Differentiating entrepreneurs from small business owners: A conceptualization. The Academy of Management Review 9(2): 354–359.
Cassrels, D. (2000) Sharing the benefits. The Courier Mail: 28.
Cunningham, J. B. and Lischeron, J. (1991) Defining entrepreneurship. Journal of Small Business Management 29(1): 45–61.
Drucker, P. F. (1985) Innovation and Entrepreneurship. New York: HarperCollins.
Feather, N. (1989) Attitudes towards the high achiever: The fall of the tall poppy. Australian Journal of Psychology 41: 239–267.
Hyslop, A. (1986) Australian Dictionary of Biography vol. 10, chap. Myer, Simcha Baevski (Sidney) (1878-1934). Melbourne University Press, 657–660.
Lewis, S. (2008) Portrait of a First Lady. The Daily Telegraph: 123.
Lifiman, M. (1999) A century of Myer Philanthropy.
Mouly, V. S. and Sankaran, J. K. (2002) The enactment of envy within organizations. The Journal of Applied Behavioral Science 38(1): 36–56.
Neil, E. L. (1920) Important pronouncement by Myer's. Argus: 18.
Patrick, A. and Hamer, B. (1986) Australian Dictionary of Biography, vol. 10, chap. McPherson, Sir William Murray (1865 - 1932). Melbourne University Press, 359–360.
Pech, R. J. (2009) Entrepreneurial Courage, Audacity and Genius Chapter 15: Our Conclusions. Frenchs Forest, Australia: Pearson Education Australia.
Pech, R. J. and Cameron, A. (2006) An entrepreneurial decision process model describing opportunity recognition. European Journal of Innovation Management 9(1): 61–78.
Petrakis, P. E. (2005) Risk perception, risk propensity and entrepreneurial behaviour: The Greek case. Journal of American Academy of Business 7(1): 233–242.
Stutley, R. (2007) The Definitive Business Plan. 2nd ed. Harlow, UK: Pearson Education.
White, C. (2004) Strategic Management. Palgrave Macmillan, Houndmills, Basingstoke, England.
Wren, D. (2005) The History of Management Thought. 5th ed. Hoboken: John Wiley and Sons Inc.

The Consultant Shaman: Contemporary Rituals in Business

Peter Prevos — Fri, 02 Jul 2010 00:00:00 +0000

Imagine you are an anthropologist, posted in a remote village in Papua New Guinea to study how people solve problems. The recent tornado has reduced the village’s yam crops dramatically, and the people are on the brink of famine. Nobody knows what has caused the crop failures—the yams refuse to grow. One village elder says he has heard about a powerful shaman from a remote village in the mountains and wants to hire her to make sure they will not go hungry.

The shaman arrives, and everybody rejoices. She walks around the village, making strange noises, sniffing everything and dancing mysteriously. She announces to have found the cause and organises a long ritual that will remove the evil that creates crop failures. All the villagers gather and sing and dance all night. Everybody feels great. The next day they go back to working the fields, knowing that the cause for the crop failures has been neutralised. The following crop is plentiful, and the famine that was nearly upon them has been magically averted. Some years later you return to the village to revisit them. Most houses are gone, and people have moved away—recent crops failed, and everybody went to the city to look for work. The Consultant Shaman

Consultant Shaman

Now imagine you are a management scientist, posted in a random corporation to study how they solve problems. The company’s revenue stream has been reduced dramatically, and they are on the brink of insolvency. Nobody knows what caused the reduction in revenue, and customers seem to ignore their products. One of the executives says that she has heard about a management consultant from England and proposes to engage him in making sure they avoid insolvency.

The consultant arrives, and everybody is very confident. He goes to the organisation, asking questions and studies piles of documents. He announces to have found the cause of the reduced revenue and organises motivational sessions that will make things better. All employees gather, and they share many great ideas with each other. Everybody feels elated, and the next day they go back to work, knowing that the cause for potential financial disaster has been neutralised. Pretty soon, cash flow is positive again, and even a small profit is made. Some years later you return to the same building only to find a great “For Rent” sign on the door. The company recently went bankrupt after all.

These stories are based on what happens in tribal societies and corporations around the world. Only the names have been changed to protect the innocent.¹

These stories are not a judgement about either shamans or management consultants. They both perform essential functions within their social universes.

Anthropology and Business

Medical anthropologists distinguish between sickness and disease. A disease is the physical aspect of a problem whereas illness is a psychological dimension.

Both consultants and shamans are good at healing sickness but are in most cases not able to heal disease. Just like scientific medicine is required to cure disease, a scientific approach is needed to improve companies.

Many managers believe that organising motivational team building sessions are sufficient to solve managerial problems. Employees are on the receiving end of an avalanche of management fads and short-lived initiatives. A positive consequence of these types of sessions is that they can build strong personal relationships, which are essential for running an excellent organisation.

At the Lucid Manager, we believe in a rational approach, based on data, to solving the hard issues. Good quality data and statistical analysis, combined with strong human relationships are the only way to find solutions to hard problems. Having said this, acknowledging that human beings are not entirely rational, is paradoxically a sensible idea. A Lucid Manager can embrace ambiguity and accept the limitations of reason.

Schuyt, T.N.M., and J.J.M. Schuijt. Rituals and Rules: About Magic in Consultancy. Journal of Organizational Change Management 11, no. 5 (1998): 399–406.

Predicting Behaviour in Recruitment: A Magician’s View

Peter Prevos — Fri, 25 Jun 2010 00:00:00 +0000

A used golden rule of recruitment is that past behaviour is an indication of future conduct. Businesses rely on reference checks or even Google searches to find out as much as they can about their potential new staff. But, is past behaviour a good proxy for predicting future behaviour?

Knowledge of the past is the foundation of all science and human understanding. We try to predict the future by drawing from our experience. Philosophers call this inductive process reasoning – drawing a general conclusion from a range of observations. But when you think profoundly about this, we can never know for sure that our past observations can be used to predict the future. Scottish philosopher David Hume did precisely this more than two centuries years ago when he found that it is not logical to think that past behaviour is an indication of future action.

For millennia people in Europe thought that all swans are white. This little kernel of absolute knowledge was rudely destroyed when in 1697 Dutch explorer Willem de Vlamingh was the first European to see a black swan in what is now Western Australia.

Predicting behaviour: A magician’s view

The silent part of the American magician’s duo Penn & Teller broke his usual silence and vow of secrecy when he explained a classic magic trick to a gathering of consciousness scholars. Teller showed that magicians could use the propensity of the human mind to seek patterns by skilfully changing the method during the routine. Teller beautifully illustrates what Hume philosophically argued: in human behaviour, the past is in no way a reliable approach to predicting the future.

Teller Speaks!

Predicting behaviour in recruitment

We have to be careful when judging a person through second-hand information gained from referees, Facebook searches and other forms of overt espionage. People are not billiard balls that operate by laws of physics. People have free will and can change their behaviour depending on the circumstances they find themselves in.

Most importantly, we can learn from our mistakes and grow as people by learning from them. Not hiring somebody who has made an error in the past could mean that you miss out on hiring an individual with a high level of maturity and ability to adapt. Therefore, when judging a person, keep in mind the words of Roman poet Horace: “Non sum quals eram“—I am not who I once was.

The Lies We Tell — Double Deception in Recruitment

Ian Watson — Fri, 04 Jun 2010 00:00:00 +0000

Matt was nervous. Most people are under the circumstances. Matt sat in front of the recruitment specialist, hoping that he'd end up with the job that was on offer. It was a step up from what he had done in the past—in pay, responsibility and influence.

Daniel, the Recruitment Manager, pushed a folded piece of paper and a pencil across the table to Matt and then did something appalling. He lied.

“Please answer the questions for this personality test there are no right or wrong answers”, Daniel reassured Matt.

Mind you, Daniel had no intention of lying nor did he even realise that he had, at the time. "There are no right or wrongs answers", is a lie that many managers and human resources professionals use from time to time. The personality tests that are conducted in workplaces throughout the world in job interviews have no answer that is intrinsically correct—as you might find in a high school mathematics exam.

However, the presence of a series of questions that are included as part of the selection process for an employment role makes a lie of Daniel's reassurance.

Deception in Recruitment

If a recruitment test of any kind is used in the context of an employee selection process, there is an intention to use it to justify the selection of a particular candidate and to exclude others. It has already been decided by the interviewer, recruitment expert or organisation that a specific personality is required for the role (or, conversely, that particular personality profiles are to be avoided). This simple truth means that for the organisation, responses on the personality test are, in fact, right or wrong.

Looking at personality tests from the candidate experiencing the job interview process, there are also right and wrong answers. In our example, Matt desperately wants the job but does not necessarily know what personality profile Daniel is looking for, nor does Matt know what responses he needs to give to present the 'right' personality profile for the job. Additionally, he knows that he should be honest during a job interview. When nervous, the tension created by the need, to be frank, and also the desire to meet the needs of the interviewer is unlikely to help Matt through the selection process nor help Daniel find the right candidate.

Set aside for now whether there is any validity in using Myers-Briggs, Keirsey, DISC or any other personality test or temperament sorter in a job interview, the simple message is that there are lies in the workplace that we use to smooth the path or appease people, but they are still lies.

A Lucid Manager will make every effort to assist Matt through the interview process and would also be aware that there is a right or wrong answer to every question in a job interview—the solution that demonstrates suitability for the job.

A formalised job interview is counter-productive human interaction with limited predictive quality when it comes to getting to know a person. The artificial nature of the job interview does, however, prevent this process from being rational. Useful job interviews should be based on the presumption of equality between the recruiter and the applicant to espouse genuine conversations between the parties. It is the task of the recruiter to make the candidate feel comfortable and treat them as an equal conversation partner. Only this way will you be able to get to know the person on the other side of the table.

For more information and critique of personality profiles, confirmation bias and the Forer effect check out Peter's essay, Know Thyself. Also check out Peter's article on recruitment, arguing that every business gets the employees they deserve.

Generation Y Does not Exist

Peter Prevos — Fri, 28 May 2010 00:00:00 +0000

Many articles about management discuss the so-called Generation Y. Authors analyse their motivations, lament their supposed high expectations and so on. This arbitrary dividing of people into generational cohorts is, however, counterproductive.

In my spare time, I occasionally perform magic shows for adults and children. Recently I was reading a booklet by David Kaye, who performs for children under the name Silly Billy.

Through the so-called benefits of science—the impossible exploits of movie heroes, blood-curdling action stories in video games – the child is thrilled to such an extent that a magician’s bag of tricks becomes a poor substitute. All this has brought about another more malicious change. Fifteen or twenty years ago the average child was well-mannered, quiet and attentive. The magician had very little difficulty keeping them under control. Today it appears that those few exceptions have become the rule. Children are more ill-mannered. They have less respect for their elders and the conduct in public places is often far from commendable.

This quote illustrates an often heard complaint about the younger generations. But there is more to this quote that meets the eye. Just like in a magic show, I have deceived you a little.

Eddie Clever wrote this paragraph in 1939! Kaye only changed “radio shows” to “video games” and all of a sudden the text looks as if it was written yesterday. We can go even further back to find similar concerns about the younger generations. There are records of Dutch priests in the 18th century lamenting the lewd and drunken behaviour of the young people in his parish. Have young people changed? People have not changed, it is us our perception of them that changes as we grow older. Generation Y does not exist!

Generation Y does not exist

This finding has a direct bearing on a concept that is frequently used in our cultural landscape and contemporary management: Baby Boomers, Generation X, Generation Y and other broad sweeping categorisations. In much of the management literature on this topic, authors proclaim that the young professionals of today are different from the way the authors themselves once were and should thus be treated differently.

There are distinct differences between age cohorts. As we go through the stages of life, we mature, and our priorities change. There are, however, no psychological differences between age groups in the past, present or future. Our psychological make-up does not evolve fast enough for us to notice any differences.

Sure, you can classify people by the era in which they were born, but to think that they are in any way psychologically different to the way Generation X or Baby Boomers were when they were at the same age as any evidence does not support generation Y. The perceived generational problem is only caused by a lack of the older generations to be able to understand the others.

The Passive Aggressive Battle of the Disappearing Teaspoons

Ian Watson — Fri, 21 May 2010 00:00:00 +0000

It doesn't matter how well-designed, functional or beautiful your office tea-room or kitchen is, it almost seems utterly useless if you can't find a teaspoon. From time-to-time, someone will snap, and there will be a call to arms. The indignant party who leads the charge will usually be well-meaning and genuinely concerned about standing up for the rights of others needing to create a vortex in their hot beverage of choice.

Emails go out; complaints are lodged and, if the workplace culture is entirely wrong, painfully polite and hilariously, hostile passive aggressive notes will adorn the tearoom. After some weeks of torment, the intractable problem will be solved by buying some more spoons, but not before several people have walked around feeling guilty while the spoon crusaders end up muttering about never being listened to. All of this is avoidable once you understand the science behind spoon migration.

30 Hillarous Passive Agressive Notes.

Science? Spoon Migration? Yes, it has been studied and published in the British Medical Journal. A research study at the Centre for Epidemiology and Population Health Research at the Macfarlane Burnet Institute for Medical Research and Public Health in Melbourne, Australia found that the half-life of teaspoons in their common tea room was 42 days.¹

That's right; it's been studied by a group of epidemiologists and, to paraphrase and butcher their results, the conclusion is: communal teaspoons will eventually disappear. This research has sparked a range of possible management interventions, including:

Don't provide spoons
Provide disposable stirrers
Provide spoons on a heavy chain
Just accept that people are going to take them and buy more spoons

Do we defend the practice of stealing office property, regardless of how small, shiny and valueless it is? Of course not! We should, however, understand which fights are worth fighting. Or in the wise words of Sun Tzu:

He will win who knows when to fight and when not to fight.

Priority of disappearing teaspoons

To provide a simple guide to where disappearing teaspoons fit into the scheme of things, consider the following list:

Occupational Health and Safety issues
Working to gain multi-million dollar revenue streams
Teaspoons
Ensuring you've employed the right people for the job
Making sure your telecommunication systems are running effectively
Ensuring your corporate image is one that appeals to consumers

Note that the list above could have been written in any order and the addition of teaspoons will always appear unworthy and unwelcome. The Battle of the Disappearing Teaspoons is not an important issue.

For the amount of time and effort, people will spend badgering other staff members about disappearing teaspoons, complaining, writing nasty notes and disrupting the workplace, based on epidemiological science, if you have a tearoom it is best to accept that you will regularly need to buy spoons. This one simple tip will help avoid a lot of the angst and pain of not being able to measure your morning caffeine dose accurately.

He who knows when he can fight and when he cannot be victorious. He who knows when he can fight and when he cannot be victorious.

Lim, Megan S C and Hellard, Margaret E and Aitken, Campbell K (2005) The case of the disappearing teaspoons: longitudinal cohort study of the displacement of teaspoons in an Australian research institute. BMJ (331)7531: p. 1498–1500. doi: 10.1136/bmj.331.7531.1498.

Blood, Sun Tzu and the Four Approaches to Strategic Management

Ian Watson — Wed, 12 May 2010 13:56:03 +0000

Strategic management is often compared with warfare. Humans have had, and sadly still appear to have, a profoundly disturbing need to settle conflict using armed warfare. While stories of the battle abound in prose, poem, song and cinema, there is usually only a glib allusion to the thought and preparation made before the slaughter itself. Though premeditation before the wholesale murder is an unsavoury concept, it is from this conscious anticipation of brutality that the art of strategy was born; to save oneself and one's friends at the expense of foes.

Sun Tzu and Strategy

An often translated and studied treatise on strategy is that of a Chinese General from around 2600 years ago named Sun Tzu.¹ Though this is one of the earliest known documented manuals on the topic of strategy, it is likely that military strategy pre-dated Sun Tzu. Initially, mainly when applied to the military, the desired outcome of a well-executed strategy was to gain an advantage over others at their expense. As applied to business in the modern era, strategy is becoming more often used to gain competitive advantage while benefiting all involved in the value chain. A positive outcome may also be obtained for one's competitors as long as a sustainable competitive advantage is maintained for oneself.

A single definition of strategy simply doesn't exist. With each commentator on the topic of strategy, there appears to be an accompanying definition. An excellent definition described by Colin White (2004) and de Wit and Meyer (1998) is any course of action for achieving an organisation's purpose(s).² This is an all-encompassing definition that includes all of a businesses' productive activity, and it is this definition that will be used for this essay.

Having provided the general purpose and definition of strategy, this essay will describe four approaches that may be taken to making strategy. Additionally, it will be argued that without a healthy workplace culture, elements of the four approaches are likely to be used within a single organisation.

Paris Hilton reading Sun Tzu and learning about Strategic Management.

Approaches to Strategic Management

Developing a strategy is described most commonly in literature as being based on the way in which the process of strategy is developed and the desired outcome of that strategy. The process of strategy development is either deliberate or emergent (or adaptive) while the desired outcome is to maximise profit or to achieve multiple purposes (plural).³

These form a matrix of four basic approaches to strategic management that may be taken to make a strategy. The four approaches to strategic management are Classical, Evolutionary, Systemic and Processual, each of which is described in detail below.

Classical

The classical approach to strategy making is the deliberate process of developing a strategy to maximise profit. This approach, though described as classical, was mainly developed and propounded by management strategists in the 1960s such as Igor Ansoff and Alfred Sloan. Sloan, the former chief of General Motors, was credited with much of the organisation's early success predominantly due to his approach of thoughtful examination of the internal and external environment and then developing a strategy to direct resources to meet the company's long-term goals. The long-term aim of the classical approach to strategy is precisely to make a profit, and this is best summed up in Sloan's words from his biography;

The strategic aim of a business is to earn a return on capital, and if in any particular case the return in the long run is not satisfactory, the deficiency should be corrected or the activity abandoned. (Richard Whittington, 2001).

This very rational approach has advantages where a change in markets and the industry move relatively slowly and where reasonable confidence can be achieved in long-term financial modelling. The classical approach relies on the strategic capability being concentrated in the organisational leader and his or her ability to suitably commanding the organisation. For this reason, particularly due to cognitive limitations in decision making by individuals, many organisations are adopting an approach that, while focusing on business profitability, acknowledges the dynamic processes acting upon and within the organisation.

Evolutionary

The evolutionary approach to strategy is based on the view that the organisation is operating within an economic environment that is ever changing. The role of strategy, in this case, is to respond to the environment for survival and profit. The main reason that this process is known as evolutionary is that it is similar to Darwinian theory in biology where only those individuals, or in this case strategies, best equipped to survive environmental or economic pressures do so (Colin White, 2004). An example of this is the strategy of Sony during the 1980s where they released well over 100 different versions of their portable cassette player, the Walkman, and allowed the market to decide which would survive and which would be removed from the market through failure.

Processual

The processual view is that the business environment is messy and largely unpredictable (Richard Whittington, 2001). Additionally, with this approach, there is an acknowledgement that decision-makers cannot act with pure reason and that only a few factors affecting a decision can be dealt with. This limitation of human cognition is known as bounded rationality (Simon, 1982).

To make sense of the chaos of the world in which the organisation operates, managers develop models, or processes, to help make decisions. These models are known to be imperfect representations of the complicated world but the help the strategist to identify and quickly respond to forces acting upon the organisation. The models that are used for decision-making may be explicit and documented or cognitive.

Ultimately, because there is an acceptance that the world is messy and unpredictable, it is accepted that maximising profit is not within the control of the strategist and sufficient profit becomes the goal. To achieve this, there is also a prevalence of satisficing in environments which are tolerant of under-performance (Colin White, 2004) where the decision maker looks for a satisfactory, rather than an optimal, alternative.⁴

Systemic

The systemic approach is taken by those that understand the need to play by the local rules (Richard Whittington, 2001). The cultural context is key to the development of the strategy. This may be a function of the way that a family culture influences a business or may also be influenced by the local cultures with different levels of uncertainty avoidance, power distance, collectivism, masculinity (Hofstede, 1983) and long-term vs short-term orientation. The systemic approach toward strategy is the deliberate development of a strategy to meet cultural and societal needs while maintaining sufficient profit.

Inevitable co-existence of multiple approaches

In determining which approach to strategy-making will be taken within an organisation, it is important first to understand who the strategist or strategists are within the organisation. The classical approach commonly has the organisational leader as the source of strategy development and the driver of strategy implementation. The more modern approach is not only the acceptance but the goal of engaging everybody in an organisation as a strategist.

An organisation is not a single entity but is instead made up of numerous individuals that hold different views of labour, economics, planning and the organisation's goals. Though it is the role of the strategists within an organisation to align their activities to achieve the organisation's goals, even under optimal conditions, this will be incomplete.

It may also be possible that this may not be in the best interests of the organisation to have all of the strategists of one mind. While a managing director or president or chief executive may propound to deliberately and methodically plan a long-term strategy to deliver profits to the organisation, it is the line managers that will usually develop decision-making models that will help respond to the changing environment. It may also be the case that a work-group is operating within a different society or culture and though they do deliberately plan but also understand that they need to play by local rules. Throughout this, each strategy that develops either succeeds or fails and the strategy of the organisation evolves.

Conclusion

It is because an organisation has many working within it that opinions and approaches will differ towards strategy. Co-existence of multiple approaches to strategic management is inevitable without the development of either a powerful organisational culture, a human resource monoculture or extremely prescriptive management, such as in the armed forces. For this reason, it is likely that a single approach will never occur, but within an organisation, it is likely that more than one approach to strategy will be represented.

Regardless of the approach taken, the judgement of the success of a strategy is measured by whether the desired outcomes have been achieved. In examining and using strategy within the business, we may consider ourselves fortunate that these outcomes require no bloodshed; the original reason that strategy was first developed.

Notes

Wing, R.L. (1997) The Art of Strategy: The Leading Modern Translation of Sun Tzu's Classic The Art of War. Thorsons.

White, C (2004) Strategic Management. Palgrave Macmillan; De Wit, B. and Meyer, R. (1994) Strategy: Process, Content, Context, West Publishing, New York.

Whittington, R (2001) What is Strategy and Does it Matter Cengage Learning.

⁴

Simon, H. A. (1982) Models of Bounded Rationality. The MIT Press, Cambridge, MA.

Theory and Practice of Management Humbug, Buzzwords and Fads

Peter Prevos — Fri, 29 Jan 2010 00:00:00 +0000

One of the grave problems in the theory and practice of management is the dominance of buzzwords, fads and humbug. Just a quick look at the management section in the local bookshop will prove this point. Management thinkers are possibly some of the most influential people of the current age. They influence, for better or worse, the lives of millions of people and have even spawned a separate language, flushed with buzzwords.

Management thinking is, due to its very nature, entrepreneurial and everybody who has an idea wants to ensure that as many people as possible read it and perhaps make a few bucks in the process. More than any other science, management ideas are primarily developed to make money, and people are willing to pay good money for them, as innovative ideas can significantly impact the bottom line.

This article briefly reviews the relationship between theory and practice in management in light of the dominance of pseudoscience in business.

Theory and Practice of Management

A problem with the theory and practice of management is that solid scientific research does not underpin many management theories. As a working manager, you need to be equipped with a pretty good 'bullshit radar'. Looking around the management section of the average bookshop the volumes on sale do not seem to meet the rigour of academic research. Popular management books give you 'simple solutions' to success. Good to Great by Jim Collins is one of the best selling volumes in this genre.

The Business Pundit blog provides an excellent critique of Collins' pseudo-scientific writing. The book is touted to be based on solid scientific analysis of data, but in fact, relies mostly on Jim's intuition (p. 11):

"We all have a strength or two in life, and I suppose mine is the ability to take a lump of unorganized information, see patterns, and extract order from the mess - to go from chaos to concept."

Collins did not use any advanced statistical analysis of the data, and there are no indications of the validity of his findings. Although he repeatedly emphasises the data, his interpretation of the data is not scientific but based on intuition. There is nothing wrong with using intuition to make specific decisions, but you can not call it science and generate general rules for good business management unless findings have a solid foundation. Enron, one of the companies that according to Collins went from Good to Great, but after the Global Financial Crisis, it quickly became apparent that Enron's success was just smoke and mirrors.

The reason pseudo-scientific books like Good to Great are bestsellers is that our brains are not naturally wired to be critical thinkers. The success of a lot of business literature is based on confirmation bias. We prefer information that confirms our preconceptions. Also, most popular management theory does not go beyond self-fulfilling prophecy, and broad sweeping general statements and its popularity is in essence based on the same psychological principle that explains the success of astrology and other forms of divination.

Another problem is that the average manager does not have the capability or motivation to understand elaborate theories that underpin human behaviour fully. Managers don't want to read complicated scientific theories. Good advice to those who seek to write a management best seller is to stay away from using any sophisticated analysis.

Management is, in essence, a social science that aims to influence human behaviour to achieve a collective goal, whether that be increasing profit or creating a great piece of orchestral music. Management seeks to change the behaviour of customers to convince them to purchase goods or services. Management tries to influence employees to ensure goal-oriented behaviour. Management theory is also about influencing or anticipating the behaviour of the external world, i.e. the stakeholders and possible competitors.

Nothing More Practical than a Good Theory

As a social science, management does not follow the strict rules of the natural sciences. There are no simple formulas to ensure staff motivation, increases sales volumes or assuring customer satisfaction. Management is about human behaviour, which is intrinsically unpredictable. Collins and other popular management writers do not use scientific methods, but there are natural limits to what the scientific method can achieve in management. All we can hope to achieve is to develop statistical models. These models do, however, not produce simple statements about friendly concepts such as 'Level 5 Leadership' and the 'Hedgehog principle'. At best, the scientific analysis provides partial insights into a very specific phenomenon instead of the organisation as a whole.

There are also too many practical and ethical issues with undertaking full-scale management experiments that would be required to make the sort of claims that Collins promoted in Good to Great. Merely looking at sets of data from the past can not generate such claims because there are too many confounding variables that are not covered by the data. In other words: the principles distilled by Collins might not be the only reasons these hand-picked companies were successful.

Scientific theories do, however, remain an essential tool to regulate our intuition. Before we had a consistent theory of gravity, architects were very limited by the size of buildings they could create. As our theoretical and practical knowledge of physics increased, so did the size and complexity of structures. A theory is required to propel human knowledge and even though management is many times more complicated than skyscrapers, using only intuition will not improve our understanding of managing organisations.

In conclusion, because management is a social science, we can not rely on theoretical models alone. Working with people requires insight and intuition that can only be obtained by life experience. However, theory underpins our intuition, and in the end, there is nothing more practical than a good theory.

Strategic Management and Serendipity — Luck in Business

Peter Prevos — Sun, 30 Aug 2009 20:17:41 +0000

Strategic management is one of the most discussed issues in business studies. But what is strategy and does it improve business performance? This essay examines the relationship between strategic management and serendipity in light of strategic management studies.

Life is characterised by serendipity, and much of human culture is, in essence, a means to deal with the unpredictable. We can not know whether the next harvest will fail, whether we still have a job next year or whether we will die. Ancient systems, such as astrology and other forms of divination were developed to reduce uncertainty in people's lives.

After the era of enlightenment, divination was replaced by science, and we now rely on weather forecasters, medical professionals, engineers and other professionals to provide information to help us plan our lives.

What is valid for life, in general, is also adequate for managing an organisation. An organisation is a group of people that are bound together through a common goal. To increase the likelihood that organisations achieve objectives, they require management, i.e. actions of members of the organisation aimed at reducing uncertainty. One of the most significant uncertainties in business is the existence of competitors and their intrinsic unpredictable actions. Strategic management is a specific kind of management that seeks to reduce this uncertainty.

Strategic Management Schools of Thought

The distinction between prescriptive theories, such as those propounded by Igor Ansoff and Michael Porter, and descriptive schools of strategic thinking are discussed. It is argued that an organisation can not rely solely on formal, prescriptive systems to develop and implement strategy and that an integrated approach is required to act strategically and increase the chances of success.

Socially constructed phenomena, such as religion, culture and management are notoriously hard to define. This fact is undoubtedly the case for business strategy, and although many scholars have applied their intellect to this problem, no consensus has thus far emerged (Forster and Browne 1996; Mintzberg 1987). The most productive approach has been to move away from essentialist “strategy is …” type definitions that attempt to capture strategy in one quintessential sentence. Mintzberg (1987) criticises the reductionist approach to strategy definition by comparing it with a group of blind scientists describing an elephant by touch alone. One says it is a trunk, the other might focus on the legs, but nobody is able is to describe the elephant as a whole. To circumvent perceived issues with essentialist definitions, a phenomenological view, characterising different perspectives of strategic thinking in a model or taxonomy is preferred.

Several authors have proposed systems to classify strategic approaches for business. For example, Igor Ansoff (1987) defined a matrix of four generic strategies and Michael Porter (1980) described three generic strategies to achieve competitive advantage.

Igor Ansoff, often credited as the Father of Strategic Management, started his career as a mathematician and later moved into the field of management (Hussey 1999). Mintzberg credits Ansoff as being instrumental in the development of the Planning School (Mintzberg and Lampel 1999). Being trained as a mathematician, it is not surprising that Ansoff's strategic thinking revolved around structure and order. The subtitle of the first edition of Corporate Strategy was “An analytic approach to business policy for growth and expansion” (Ansoff 1987). The process of strategy formulation is, according to Ansoff, not a creative activity but a formal one, consisting of distinct steps supported by checklists and other control techniques (Mintzberg and Lampel 1999). Ansoff published a great deal on turbulent and discontinuous change (Hussey 1999). But Ansoff, thinking like a mathematician, sought to control the unpredictability of the external environment with checklists, budgets and operating plans. The reality he thus tried to control is, however, not physical and predictable, but social and therefore less likely to be controllable through analytic means.

Almost two decades after Ansoff published his first ideas on strategic management, Michael Porter came on the scene and quickly attained the status of management guru. In his book Competitive Strategies, Porter (1980) argues that only three strategies exist which provide opportunities for success. The differences between these strategies are in the strategic advantage sought from either cost or differentiation and the target aimed at (Speed 1989). Mintzberg and Lampel (1999) place the work of Porter in the Positioning School, a prescriptive view on strategy popular in the 1980s. In Porter's view, a strategy can be reduced to a generic position taking based on a formal analysis of the external environment. Because of the intuitive appeal of Porter's work, it quickly picked up by management consultants, who proclaimed it to be a scientific truth (Mintzberg and Lampel 1999). One often heard criticism of Porter's work is, however, that it lacks empirical support, using selective case studies to make his point (Speed 1989).

Henry Mintzberg employs a more philosophical approach when he classifies strategic business thinking in ten Schools of Thought, which he describes in their historical and ideological context. Early theorists, such as Igor Ansoff, focused on the analytical aspects of strategy formation. The first three schools in Mintzberg's taxonomy are therefore prescriptive and focus on how strategy ought to be formulated. One of the major premises of the prescriptive schools is the Performance Claim, which states that the more an organisation engages in systematic strategic planning, the more likely it will result in above average returns. The prescriptive schools have been influential in the discourse of strategy formulation, but have failed to explain the process of strategy execution (Mintzberg 1990).

Later developments in strategic management literature moved away from the prescriptive approaches modelled on the quantitative sciences and their inherent presumption of a controllable world. The descriptive schools of thought are inspired by the qualitative social and cultural sciences and study what businesses did to be successful for other organisations to learn from their approaches. The descriptive schools move from a focus on apriori strategic planning to a-posteriori dynamic strategy formulation and execution.

For practitioners, the prescriptive schools of thought are desirable, illustrated by the ubiquity of tools such as SWOT analysis and generic strategies, such as those developed by Ansoff (1987) and Porter (1980). The descriptive schools are somewhat problematic for practitioners of strategic management because they do not provide straightforward recipes for success. Analogous to the Naturalistic Fallacy in moral philosophy, where an ought cannot be derived from an is, the descriptive schools (strategy as an is) are not very suitable for managers to determine what strategic decision ought to be made. The question raised by Mintzberg's taxonomy of strategic thought and other similar taxonomies is how average practitioners can decide which strategy they should employ.

Strategic Management and Serendipity

One of the major premises of the prescriptive schools of strategic management thought is the Performance Claim, which can be formally expressed as (Hill et al. 2004: 23):

Strategic planning, on average, has a positive impact on company performance.

Miller and Cardinal (1994) investigated how firm size, capital intensity and environmental turbulence influences performance in firms with different degrees of formal strategic planning. They found that correlations between planning and business results show a relatively large fluctuation (-0.30 < r² < 0.71), but are skewed towards positive performance. They also concluded that stronger planning-profitability correlations emerge when firms face turbulent environments (Miller and Cardinal 1994). Rogers et al. (1999) investigated whether the relationship between strategic planning processes and organisational performance depends on the content of the strategy pursued and not just the extent of planning. They concluded that formal strategic planning positively influences company performance, as expressed in the Performance Claim. Miller and Cardinal (1994) also support the Performance Claim but argue that companies typically only realise 63% of the potential value of their strategy because of defects in planning and execution. They provide a list of possible causes of performance loss but do not seem to recognise that unpredictable events can negatively influence performance and imply that any strategy can be realised, as long as planned and executed appropriately.

However, some academics question the idea that formal strategic planning systems are a sufficient condition to improve company performance and argue that luck and serendipity play a critical role in determining competitive advantage (Mintzberg 1979; Hart 1992; Hamel 1996). This criticism is supported by the fact that that the prescriptive view of strategy formation contains a logical inconsistency. In prescriptive schools, a strategy is often defined as the actions a company takes to attain superior performance (Hill et al. 2004). However, when a strategy is thus defined, the Performance Claim becomes a tautology:

Actions taken to attain superior performance, on average, have a positive impact on company performance.

Another issue with prescriptive schools of thought is the presumed causality from plan to action to succeed. The definition of strategy discussed above expresses an intent (“Actions taken to attain …”). This intent does, however, not imply a causal link between planning action and success. Hamel (1996) argues that strategic planning, as practised in business management, is not strategic at all. He claims that strategy development tends to be a reductionist process, based on simple rules and heuristics, working from the present to the future, rather than the other way around. The strategic planning process is largely extrapolative, and it is assumed that the future will resemble the past, an assumption that David Hume has shown to be irrational. Hamel, therefore, emphasises the creative aspects of strategic management and points out that it is not a rote process that can be instrumentalised in neat systems, such as SWOT diagrams and generic strategies. A strategy is in the view of Hamel (1996: 71) a “quest that must be a subversive revolution to improve company performance”.

Logical analysis of the principles of the prescriptive schools of strategic thought shows them to be invalid because the Performance Claim is tautological. However, the empirical fact of the Performance Claim holds at least some truth remains. This seeming contradiction emerges because the relationship between planning and organisational success is more complicated than was assumed in the research. Firstly, the analysis only used companies still in existence, leaving out those that did employ strategic planning but failed. Secondly, without conducting fully controlled studies, it is near impossible to prove causality between planning and success. A positive correlation does not imply that planning is the cause of a good business result.

Hart (1992) summarises the discourse between proponents of strict formal planning and those that stress the limits of this approach. He refers to formal planning as the rational model for strategy formulation. The rational model advocates to consider all available alternatives, identify and evaluate all of the consequences of each alternative and then select the preferred choice. Researchers challenging this approach argue that organisations can achieve only limited rationality because of individual cognitive limits, heuristics and biases in human judgement (Forster and Browne 1996).

The process of strategy formation is, according to Mintzberg (1979), the interplay between the formal intended strategies and informal emergent strategies, mediated by leadership. What he emphasises is that strategy is not a fixed plan, nor does it change systematically at prearranged times at the will of management. Mintzberg also emphasises the unpredictability of the external environment. An organisation can find itself in a stable environment for long periods of time, without the need to change its strategy. Sometimes the environment can, however, become so turbulent that even the best planning techniques are useless because of the high level of unpredictability (Mintzberg 1979). This seems to contradict the finding of Miller and Cardinal (1994) that stronger planning-profitability correlations emerge when firms face turbulent environments. This is not unexpected as those companies that succumbed to the turbulent environment were not included in the research. This leaves the question of whether to follow prescriptive or descriptive schools of thought open. The most productive answer is that strategic management is a complex synergy of apriori intended and a-posteriori emergent strategy and positive company performance are brought about by a combination of both. Thus, although formal planning is not a sufficient condition to obtain superior company performance, it is most certainly a necessary condition.

Research into strategy formulation has resulted in a plethora of strategic management theories. The fundamental differences between individual theories and the fact that they come and go in quick succession support the claim that there is no firm scientific basis for theories of management (Miller and Cardinal 1994). Strategic management theory is an eclectic field with contributions from military history, engineering, industrial economics, organisational sociology, behavioural, cognitive and social psychology, anthropology and political science (Forster and Browne 1996). Strategic management is thus more aligned with social sciences than the exact sciences and as such needs a methodology that suits the unpredictability of human behaviour, rather than a rational model, feigning predictability.

Management deals with human beings and their social interaction and both the external and internal environment are in a constant state of flux. A strategy will only improve performance if its formulation takes the fundamental unpredictability of the world into account. A strategy cannot be formulated through rational systems that model the real world. Formulating strategy is a continuously developing narrative between the organisation and the external environment.

Strategic planning as a means to reduce uncertainty in organisations is a young science in which many different perspectives have been explored. Following a taxonomy based on descriptive and prescriptive strategic management, it has been shown that a formal planning approach by itself can not cause a company to achieve above-average returns.

Although empirical research points towards a positive correlation between strategic planning and company performance, these studies suffer from methodological problems. This problem does, however, not imply that strategic planning as a formal exercise is futile. Formal strategic planning is vital for prudent management. Not as a means to define the course for years ahead, but as a way to be able to anticipate the unpredictability of external influences.

References

Ansoff, Igor (1987) Corporate strategy. London: Penguin Business.
Forster, J. and Browne, M. (1996) Principles of Strategic Management, chap. The evolution of strategic management thought. Macmillan, 21–50.
Hamel, Gary (1996) 'Strategy as revolution'. Harvard Business Review (July–August): 69–82.
Hart, Stuart L. (1992) 'An integrative framework for strategy-making processes'. Academy of Management Review 17(2): 237–351.
Hill, W.L., Jones, Gareth R. and Galvin, Peter (2004) Strategic management: An integrated approach. Milton: Wiley.
Hussey, David (1999) 'Igor Ansoff's continuing contribution to strategic management'. Strategic Change 8(7): 375–392.
Miller, C. Chet and Cardinal, Laura B. (1994) 'Strategic planning and firm performance: a synthesis of more than two decades of research'. Acadamy of Management Journal 37(6): 1649–1665.
Mintzberg, H. (1987) 'The strategy concept I: Five Ps for strategy'. California Management Review 30(1): 11–24.
Mintzberg, Henry (1979) 'Patterns is strategy formation'. International Studies of Management and Organisation IX(3): 67–86.
Mintzberg, Henry (1990) 'Strategy formation: Schools of thought'. In James W. Frederickson, ed., Perspectives on strategic management. Harper Business, 105–235.
Mintzberg, Henry and Lampel, Joseph (1999) 'Reflecting on the strategy process'. Sloan Management Review 40(3): 21–30.
Porter, Michael E. (1980) Competitive strategy. Techniques for analyzing industries competitors. New York: The Free Press.
Rogers, Patrick R., Miller, Alex and Judge, William Q. (1999) 'Using information processing theory to understand planning/performance relationships in thecontext of strategy'. Strategic Management Journal 20(6): 567–577.
Speed, Richard J. (1989) 'Oh Mr Porter! A Re-Appraisal of Competitive Strategy'. Marketing Intelligence and Planning 7(5): 8–11.

Strategic Management and Business Performance

Peter Prevos — Fri, 28 Aug 2009 23:16:36 +0000

A considerable amount of research has been devoted to establishing a relationship between strategic management and business performance. The spectrum of conclusions ranges from strong positive correlations to claims that the role of formal planning systems in business management is only informational (Rogers, Miller & Judge 1999, 567–568). Hill, Jones & Galvin (2004, 23) take a position in this debate by claiming that "strategic planning, on average, has a positive impact on company performance".

This claim further referred to as the 'Performance Claim', is based on research conducted by Miller & Cardinal (1994) and Rogers et al. (1999). Many academics question the usefulness of formal strategic planning systems as a means to improve company performance and argue that serendipity plays a critical role in determining competitive advantage (Mintzberg 1979, Hart 1992, Hamel 1996).

This essay evaluates the claim that strategic planning has a positive influence on company performance. This paper argues that an organisation can not rely solely on formal systems to develop a corporate strategy. Although empirical research points towards a positive correlation between strategic planning and company performance, these studies suffer from some methodological problems.

It will further be argued that because strategic management is not an exact science, strategy formulation requires a great deal of intuition and company performance relies to some extent on serendipity. This finding does, however, not imply that strategic planning as a formal exercise is futile. Strategic planning is vital for excellent management of an organisation. Not as a means to plot the course for years ahead, but as a way to be able to anticipate the unpredictability of external influences.

In the next section of this essay, the terms of the performance claim will be clarified. Following a discussion of research supporting and rejecting the Performance Claim, the different viewpoints are analysed and, an integrated approach to strategic planning will be proposed.

Strategic Management and Business Performance

The Performance Claim (Strategic planning, on average, has a positive impact on company performance) has two terms that need clarification before it can be assessed: strategic planning and company performance.

What is strategic planning?

Hill et al. (2004, 5) define strategy regarding its function as: "an action a company takes to attain superior performance". Functional definitions are, however, not suitable to assess the Performance Claim. When a strategy is defined as the action(s) taken to improve performance, the claim that strategy enhances performance becomes a tautology (Actions taken to attain superior performance, on average, have a positive impact on company performance). A different kind of definition is required to assess the Performance Claim.

Mintzberg (1979, 11) argued that strategic planning is a multifaceted phenomenon which is impossible to define in a short essential definition. He rejects any interpretation of strategy that restricts it to explicit, a priori guidelines and expands restrictive definitions by including evolved, a posteriori, consistencies in decisional behaviour as a strategy. Mintzberg advocates a phenomenological approach and defines strategy as a "plan, ploy, pattern, position and perspective" (Mintzberg 1987).

The multifaceted approach of Mintzberg is more suitable to assess the Performance Claim because it explains what strategic management is or can be, not what it is intended to do. Strategic planning is the formal process, or set of processes used to determine the strategies (actions) of the organisation (Hill et al. 2004, 5). Not all strategy is, however, derived from a formalised process. Hill et al. (2004, 23) distinguish, following Mintzberg, between intended strategy and emergent strategy. In intended strategy—the formal strategic planning process—strategic choices are based on rigorous analysis of external and internal factors.

Emergent strategies, on the other hand, originate from organisational grassroots. Emergent strategies are not developed but evolve in an organisation through actions that the organisation takes in reaction to internal and external circumstances (Hill et al. 2004, 20). The discourse around the Performance Claim focuses on the impact on the performance of strategic planning as a formalised process. In this essay, the Performance Claim will be evaluated from both perspectives.

Company performance

Company performance is traditionally related to increasing shareholder value. Performance can, however, also be measured regarding reduction of environmental footprint, improved occupational health and safety performance, increased customer satisfaction and so on. All research referred to in this essay uses the restricted interpretation of company performance, e.g. financial performance.

A key term in the Performance Claim is that company performance is on average positively affected by formal strategic planning. The research referred to in this essay (Miller & Cardinal 1994, Rogers et al. 1999) investigated whether a positive correlation between the amount of strategic planning and company performance exists; the more formal strategic planning, the better a company will perform.

The Performance Claim

The Performance Claim states that there exists a positive correlation between the extent of formal strategic planning and financial company performance.

Miller & Cardinal (1994) argue that strategic planning positively influences financial performance of an organisation. They investigated how firm size, capital intensity and environmental turbulence influence performance in firms with different degrees of formal strategic planning. The authors concluded that the mean correlations support the thesis that planning positively affects growth and profitability. The correlations show a fairly large fluctuation ($0.30 < r^{2} < 0.71$), but are skewed towards positive performance. They also concluded that stronger planning-profitability correlations emerge when firms face turbulent environments (Miller & Vaughan 2001, 1658).

Rogers et al. (1999) argued that a direct link between strategic planning and performance could not be made without considering the moderating effect of the actual content of the strategy. They investigated whether the relationship between strategic planning processes and organisational performance depends on the content of the strategy pursued and not just the extent of planning. Strategic planning was measured by using a questionnaire completed by representatives of several banks, which resulted in a set of planning dimensions: accounting control, integration & coordination, flexibility, goals & plans, scanning and broad analysis. When the data was controlled to include strategy content, it was found that strategy content moderates the relationship between planning and performance. The overall conclusion of their research was that formal strategic planning positively influences company performance, as expressed in the Performance Claim.

Mankins & Steele (2005) support the Performance Claim but argue that companies typically only realise 63% of the potential value of their strategy because of defects in planning and execution. Mankins and Steele provide a list of causes of performance loss but do not recognise that contingencies can negatively influence company performance. They thus imply that any strategy can be realised, as long as planned and executed appropriately.

Emergent Strategy and company performance

Several researchers emphasise the importance of emergent strategy formulation and downplay the role of formal strategic planning. They argue that luck plays a critical role in whether an organisation is successful or not (Mintzberg 1979, Hart 1992, Hamel 1996).

Strategy formation is, according to Mintzberg, the interplay between the formal, intended strategies and informal, emergent strategies, mediated by leadership (Mintzberg 1979, 72). He emphasises that strategy is not a fixed plan, nor does it change systematically at prearranged times at the will of management (Mintzberg 1979, 84). Mintzberg emphasises the unpredictability of the external environment. An organisation can find itself in a stable environment for long periods of time, without the need to change its strategy. Sometimes the environment can, however, become so turbulent that even the best planning techniques are useless because of the high level of unpredictability (Mintzberg 1979, 75). This seems to contradict the finding of Rogers et al. (1999) that stronger planning-profitability correlations emerge when firms face turbulent environments. Companies that perform well in a chaotic environment acknowledge that circumstances are in eternal flux. Both Rogers and Mintzberg are correct, the world is unpredictable, but proper strategic planning includes provisions for this uncertainty, such as scenario planning (Hill et al. 2004, 23).

Hamel (1996) argues that strategic planning as it is practised in business management is not strategic at all. He claims that strategy development tends to be a reductionist process, based on simple rules and heuristics, working from the present to the future, rather than the other way around. The strategic planning process is mostly extrapolative, and it is assumed that the future will resemble the past, an assumption that David Hume has shown to be irrational more than 250 years ago (Prevos 2005). Hamel emphasises the creative aspect of strategic management and points out that it is not a rote process that can be instrumentalised in neat systems, but a quest that must be a subversive revolution to improve company performance (Hamel 1996, 71).

An integrated approach

Hill et al. (2004, 130) argue that, although luck may be a reason for an organisation's success in particular cases, it is an unconvincing explanation for the persistent success of a company. They find it "difficult to imagine how sustained excellence … could result from anything other than a conscious effort" (Hill et al. 2004, 130). There are, however, many examples of how luck has positively influenced the future of organisations dramatically, and vice versa how unpredictable external circumstances have negatively influenced an organisation's fortune.

Empirical research shows a positive correlation between the extent of formal strategic planning and company performance (Miller & Cardinal 1994, Rogers et al. 1999). This research does, however, not prove a causal link between strategic planning and company performance. From an evolutionary perspective, only those companies that maintain a positive performance will survive. The research did not include an analysis of failed companies and their strategic planning. Furthermore, the research focusses on realised strategies. Mintzberg argues in this context that achieved strategy is always a combination of intended and emergent strategies (Mintzberg 1979, Mintzberg 1987). Following Mintzberg's typology of strategy formulation, the positive correlation between strategic planning and performance is not only based on formal, intended, strategy. Emergent strategy, and thus serendipity, luck and informal strategy formulation, play an essential role in achieving positive performance. This concept also explains the seeming contradiction between Rogers and Mintzberg regarding the influence of turbulence. Hill et al. (2004, 21) recognise the mutual importance of intended and emergent strategy and stress that management needs to understand the process of emergence and intervene when appropriate. Even though these strategies evolve without going through the formal process, management needs to evaluate these and select those that align with the vision set for the organisation.

Hart (1992) summarises the discourse between proponents of strict formal planning and those that stress the limits of this approach. He refers to formal planning as the rational model for strategy formulation. The rational model advocates to consider all available alternatives, identify and evaluate all of the consequences of each option and then select the preferred alternative. Researchers challenging this approach argue that organisations can achieve only limited rationality because of individual cognitive limits, heuristics and biases in human judgement.

Hart proposes an integrated approach to strategy formulation. Hart argues that prior literature on the subject has focused on a particular theme and has failed to capture the full range of the phenomenon of strategic planning.

An integrated approach to strategic management is required to get the full benefits. Strategic planning will not automatically positively influence performance once put into place; it requires constant "tinkering and kludging" to deal with continually changing circumstances.

Strategic management as a science

Research into strategy formulation has resulted in a plethora of strategic management theories. The fundamental differences between individual approaches and the fact that they come and go in quick succession support the claim that there is no firm scientific basis for theories of management (Miller & Vaughan 2001, 5).

Strategic management theory is an eclectic field with contributions from military history, engineering, industrial economics, organisational sociology, behavioural, cognitive and social psychology, anthropology and political science (Foster & Browne 1996, 21). Strategic management is thus more aligned with social sciences than the exact sciences and as such needs a methodology to suit the unpredictability of human behaviour, rather than a rational model, feigning predictability.

Management deals with human beings and their social interaction and both the external and internal environment are in a constant state of flux. A strategy will only improve performance if its formulation takes the fundamental unpredictability of the world into account. Strategy cannot be formulated through rational systems that model the real world. Formulating strategy is a continuously developing narrative between the organisation and the external environment.

Conclusion

In this essay, the question of whether strategic planning has, on average, a positive impact on company performance has been investigated. It has been argued that this is indeed the case, but a business can not rely on formal strategy planning alone to affect performance positively.

Although research (Miller & Cardinal 1994, Rogers et al. 1999) has established a positive correlation between strategic planning and company performance, it has not found a causal relationship between formal strategic planning and improved company performance. Strategy formulation is a complex synergy of intended and emergent strategy, and positive company performance is brought about by a combination of both.

It has also been argued that strategic management as science is closely related to social sciences and that the methodology of strategy formulation needs to fit the nature of the discipline. This idea does not mean that strategic planning is a futile exercise. Even in uncharted waters, a course needs to be chosen, even if there are no reference points for orientation. Strategic planning is vital for ensuring continued good company performance. Only those organisations that practice some form of strategic planning will survive. Not strategy as a rational model to plot the course for years ahead, but as a narrative between the organisation and the external environment, anticipating the unpredictability of external influences.

References

Foster, J. & Browne, M. (1996), Principles of Strategic Management, Macmillan, chapter The evolution of strategic management thought, pp. 1–50.
Hamel, G. (1996), Strategy as revolution, Harvard Business Review (July–August), 69–82.
Hart, S. L. (1992), An integrative framework for strategy-making processes, Academy of Management Review 17(2), 237–351.
Hill, W., Jones, G. R. & Galvin, P. (2004), Strategic management: An integrated approach, Wiley, Milton.
Mankins, M. C. & Steele, R. (2005), Turning great strategy into great performance, Harvard Business Review (July–August), 64–72.
Miller, C. C. & Cardinal, L. B. (1994), Strategic planning and firm performance: a synthesis of more than two decades of research, Academy of Management Journal 37(6), 1649–1665.
Miller, T. R. & Vaughan, B. J. (2001), Messages from the management past: Classic writers and contemporary problems, SAM Advanced Management Journal pp. 4–11.
Mintzberg, H. (1979), Patterns is strategy formation, International Studies of Management and Organisation IX(3), 67–86.
Mintzberg, H. (1987), The strategy concept I: Five Ps for strategy, California Management Review 30(1), 11–24.
Rogers, P. R., Miller, A. & Judge, W. Q. (1999), Using information processing theory to understand planning/performance relationships in the context of strategy, Strategic Management Journal 20(6), 567–577.

Environmental Ethics for Managers: Using Deontic Constraints

Peter Prevos — Wed, 22 Jul 2009 21:39:42 +0000

What responsibility does a manager have concerning environmental ethics? Mr Freeman was a model citizen with a long career in public service. In 2003 he held the position of Director of Infrastructure at the Port Macquarie-Hasting Council and was responsible for the implementation of infrastructure works. However, this year Mr Freeman paid a hefty personal price after an error of judgement destroyed the habitat of two threatened animal species during road construction project (Land & Environment Court of New South Wales 2009). This case is of importance because Justice Lloyd pierced the corporate veil for environmental offences by holding Mr Freeman partially personally accountable for the damage caused by the construction works (Blake Dawson 2009; Thomas 2009).

Justice Lloyd pierced the corporate veil for environmental offences.

This essay discusses the Corporate Governance aspects of this case from the stakeholder perspective and an ethical perspective. A combination of utilitarian and Kantian environmental ethics is used to argue that the Council failed to recognise the environment as a stakeholder and as such gave preference to potential financial gain over the environmental damage. Furthermore, it is recommended that governance systems based on ISO 14001 could have prevented the destruction of habitat.

In 2003, Port Macquarie-Hasting Council (the Council) engaged in the construction of roadworks on land owned by the Council in an area known as Partridge Creek. Mr Freeman was responsible for overseeing these works. As part of the preparation for this project, several environmental assessments were undertaken, and the Council was aware that this land is a habitat of the Grass Owl and the Eastern Chestnut Mouse, both listed as threatened species. Construction works commenced, ignoring this information and destroyed habitat for these species (Land & Environment Court of New South Wales 2007, 2009).

Council and Mr Freeman were prosecuted by Mr Garrett, representing the Department of Environment and Conservation. Justice Lloyd found that Council's system of works to mitigate environmental risk had failed in that Mr Freeman “completed a tick-a-box checklist which did not even mention the threatened species” (Land & Environment Court of New South Wales 2009: 28). One of Mr Freedman's defences was that he had no training in environmental assessments and that no manuals were available and he thus could not be held liable for the quality of the evaluations.

Justice Lloyd found this not to be a sufficient defence (Land & Environment Court of New South Wales 2009: 81). Justice Lloyd further observed that: “… as a director and sometimes acting General Manager of the council Mr Freeman ought to have made proper efforts to find out what was required for a proper assessment after having become aware that such an assessment was required” (Land & Environment Court of New South Wales 2009: 162).

Both the Council and Mr Freedman were found guilty. Mr Freeman was convicted of paying $57,000 in fines and $167,500 prosecutor's costs. Council was convicted of paying similar amounts (Land & Environment Court of New South Wales 2009). The proceedings against the Council and Mr Freeman have prompted improvements to the way projects are managed, including a project management facilitation process aimed at ensuring there is a documented and accountable process for projects planning and obtaining approvals. Environmental checklists have been rewritten, and measures to ensure that staff are properly trained to have been implemented (Land & Environment Court of New South Wales 2009; Port Macquarie-Hastings Council 2007: 163).

Stakeholder Perspective

Given that Port Macquarie-Hastings Council is not a corporation in the traditional sense of the word, i.e. it is not owned by shareholders, the standard owner-centric model for corporations cannot be applied to this case. The Council is therefore viewed from the stakeholder perspective. A stakeholder is any person or organisation that has an interest in the dealings of the Council (Du Plessis et al. 2005). In this model, directors and managers have a responsibility to all stakeholders, including the owners.

Management must look after the health of the organisation, balancing the competing claims of the different stakeholders (Beauchamp and Bowie 1997). Two of the stakeholders that have an interest in the Council, i.e. the community and the environment, are discussed below.

The community in which the Council operates is its most important stakeholder. As the Council is a public organisation, no specific owners can be identified. The community is effectively acting in this role, and the owners of the Council are thus the people of Port Macquarie and Hastings. Complicating factor in the case of public organisations, such as Councils and utilities, is that most owners are also customers of that same organisation. The community is thus a stakeholder that embodies both the owners and the customers of the Council.

Corporations are characterised by a separation of ownership and control of operations. This characterisation is the genesis of the Agency Problem, which deals with the difficulty of effective corporate control to ensure that managers act in the best interest of the owners. Managers, who serve as agents for the owners, may not always work in the best interest of owners when control is separate from ownership (Bonazzi 2007).

Stakeholder theory effectively expands the realm of interest of the organisation to all stakeholders. The Agency Problem is thus also expanded as none of the stakeholders, including the community, have no direct control over decisions made by the Council. The case under consideration is an illustration of the Agency Problem. Mr Freeman has taken environment risk to obtain financial benefits to the detriment of the environmental, resulting in significant monetary damages. Mr Freedman thereby damaged the interests of the community, as the additional financial burden will negatively impact on the level of service the Council can provide.

Managers will optimise decisions only if appropriate incentives are given, clear limits of responsibility are defined, and activities are monitored (Bonazzi 2007). From the court proceedings, there is, however, no evidence that a comprehensive process for managing environmental risk was in place and the internal audit program did not include environmental risk (Land & Environment Court of New South Wales 2009).

After the initial court proceedings, the Council developed a comprehensive Project Management Framework and compliance with these requirements was added to the internal audit plan (Port Macquarie-Hastings Council 2007), thereby protecting the interests of the community. The Natural Environment is the second importantstakeholder in this case.

Although the natural environment is voiceless and can thus not express its preferences, it is embodied by lobby groups and environmental regulators. The environment is generally included as a stakeholder because of the recognition that it is an essential aspect of the long-term sustainability of corporations and society in general (Du Plessis et al. 2005). As discussed below, the standard ethical theory is anthropocentric and is as such, not able to account for the environment. This has created a situation where the environment is seen as a means to achieve financial objectives, resulting in its short-term exploitation.

Mr Freeman made an error in judgement in that he prioritised the short-term financial interests of the Council over the long-term interests of the environment. This is in line with the classical view of the firm in which all benefits are internalised, and the costs of actions are externalised (Beauchamp and Bowie 1997). In effect, the environment, embodied by the two threatened species, has paid the price for the financial gain anticipated by the Council. Governments have put environmental legislation in place to regulate the behaviour of managers, to counter the natural tendency of corporations to externalise the cost of their actions. It is clear from the court proceedings that Mr Freeman did not recognise the environment as a stakeholder with intrinsic value and it was only because of legislative pressures that the Council adopted a better way to mitigate environmental damage in future projects.

In summary, the stakeholder view of an organisation ensures that the no harm principle applies to all stakeholders, rather than only the owners. For activities with potential harm to the natural environment, it is essential to consider it as a stakeholder, represented by relevant legislation and interest groups.

Environmental Ethics for Managers and Deontic Constraints

From an ethical point of view, the Council has given priority to maximising the financial return of the land over its environmental value (Land & Environment Court of New South Wales 2009: 74). To assess the moral implications of the Council's actions, two ethical models (Brennan and Lo 2008) are applied to this case.

Consequential environmental ethics consider an action right or wrong by assessing the perceived consequences. In utilitarianism, the most widely used consequentialist theory, the outcome of an action is considered good if ‘utility', i.e. pleasure or happiness, is maximised. For utilitarian environmental philosophers, such as Peter Singer (1979), this argument is extended to include animals. In other words, for an action to be ethical, the overall utility as a consequence of the action for all sentient beings needs to be maximised.

However, utilitarianism is problematic as an ethical theory for environmental concerns (Brennan and Lo 2008). The environment does not only consist of humans and animals, but also of non-sentient entities such as plants, rivers and landscapes. Following the utilitarian strand of thought, these are not objects of moral concern as they cannot experience pleasure or pain and are thus of instrumental value to the satisfaction of sentient beings (Brennan and Lo 2008).

To determine whether the actions of the Council were ethical from a utilitarian point of view would require an extensive cost-benefit analysis, the so called Hedonistic Calculus, which lies outside the scope of this essay. What can be asserted is that the Council's actions reduced the utility of the threatened species by destroying their natural habitat. Whether this has preference over the anticipated financial return anticipated through the new infrastructure is not immediately apparent.

Deontological theories consider whether an action is right or wrong irrespective of the consequences. Following Emmanuel Kant's second formulation of the Categorical Imperative, humanity can never be used as a means to an end: “Act in such a way that you treat humanity, whether in your person or the person of any other, always at the same time as an end and never merely as a means to an end.” (Kennett and Townsend 1998: 75). In deontological environmental ethics, the anthropocentrism of the Categorical Imperative is expanded to include the environment (Brennan and Lo 2008). From a stakeholder theory perspective, every stakeholder, including the environment, has intrinsic value and a right not to be treated as a means to an end. This view is expressed in concepts such as product liability, industrial relations and environmental regulation (Beauchamp and Bowie 1997). A deontological environmental thinker could thus argue that the Council violated the intrinsic value of the two threatened species because they were used as a means to an end; as a means to obtain financial gain.

In summary, assessing this case from an ethical perspective confirms the importance of including the environment as a stakeholder with intrinsic value. This case illustrates that without this concept the environment can be used as a means to an end, as a means to increase the utility of the other stakeholders.

This case shows that using a stakeholder view of an organisation, as opposed to the classical view which gives preference to the owners, provides a better model to ensure all legal and moral obligations can be fulfilled. Furthermore, it is essential to recognise the natural environment as a stakeholder with equal intrinsic value equal to all other stakeholders. Assessing this case from an ethical perspective shows that the utilitarian point of view can lead to infinitely complex discussions about the utility of the consequences of each action the Council can undertake. How can the Council decide which values have precedence in this case? From a legal point of view, there is no issue as legislative powers have agreed to provide the threatened species with intrinsic preferential values over the anticipated financial gain. The principle nevertheless remains. Some organisations aim to alleviate this issue by using a Triple Bottom Line approach, in which financial, social and environmental values are compared.

This inherently utilitarian point of view has, however, never been implemented to its fullest extent because there is no agreement between the relative value of environmental versus social and financial values (Norman and MacDonald 2004). In practical terms, what is the value of the survival chances of the Grass Owl and the Eastern Chestnut Mouse compared to the social and financial benefits of the road construction undertaken by Council? Regardless of the inherent issues with consequentialism, it is an intuitively appealing model that is widely used in decision-making processes.

The non-consequentialist deontological view offers a way to mitigate the issues inherent with utilitarianism. Although in practice a Triple Bottom Line analysis is required to come to decisions, the law acts as a deontic constraint to ensure that voiceless stakeholders, such as the environment, are provided with intrinsic value. This forces organisations to act dutifully to the environment and other stakeholders.

From a practical point of view, the managerial impact of this case is that senior managers can be held personally accountable and that they need to consider the environment as a stakeholder with intrinsic value.

Not being an expert in the issue at hand is not accepted as a reasonable defence (Thomas 2009). Being aware of environmental issues is not sufficient and taking active steps to implement a robust Environmental Management System is the best risk management approach (Blake Dawson 2009; Thomas 2009). Most Australian states and territories maintain environmental laws which effectively deem certain corporate officers to be guilty of offences which their corporate officers commit (Thomas 2009). These laws are necessary to ensure that corporations and public organisations appropriately assign value to the environment over anticipated financial gains and other perceived internalised benefits.

One mechanism to control environmental risk, used by many organisations around the world, is ISO 14001:2007 Environmental Management Systems. This international benchmark defines standards for management commitment to ensure that directors and senior managers are aware of and actively involved in mitigating environmental risk (Maharaj and Ramnath 2005). The risk of habitat destruction would have been recognised and mitigated had the Council implemented such a system before undertaking the road construction works.

References

Beauchamp, Tom L. and Bowie, Norman E., eds. (1997) Ethical theory and business. 5th ed. Prentice Hall.
Blake Dawson (2009) Prosecution of employees for breaches of environmental legislation.
Bonazzi, Livia (2007) 'Agency theory and corporate governance: A study of the effectiveness of board in their monitoring of the CEO'. Journal of Modelling in Management 2(1): 7–23.
Brennan, Andrew and Lo, Yeuk-Sze (2008) Environmental Ethics. In Edward N. Zalta, ed., The Stanford Encyclopedia of Philosophy, fall 2008.
Du Plessis, J, McConvill, J and Bagaric, M (2005) Principles of Contemporary Corporate Governance. Melbourne: Cambridge University Press.
Kennett, Jeanette and Townsend, Aubrey, eds. (1998) Ethics. Unit Study Guide. Monash University.
Land & Environment Court of New South Wales (2007) Garrett v Freeman (No. 4).
Land & Environment Court of New South Wales (2009) Garrett v Freeman (No. 5); Garrett v Port Macquarie Hastings Council.
Maharaj, Priya S and Ramnath, Kelvin (2005) 'Benefits in an Environmental Management System'. ASQ World Conference on Quality and Improvement Proceedings : 347–352.
Norman, Wayne and MacDonald, Chris (2004) 'Getting to the Bottom of Triple Bottom Line'. Business Ethics Quarterly 14(2): 243–262.
Port Macquarie-Hastings Council (2007) 'Council meeting 06 August 2007'.
Singer, Peter (1979) Practical Ethics. Cambridge University Press.
Thomas, Nick (2009) 'Environmental compliance for directors and managers—a timely reminder'. Keeping good companies 61(4): 231–233.

Milton Friedman on Corporate Social Responsibility

Peter Prevos & Ian Watson — Tue, 14 Jul 2009 00:00:00 +0000

The question of how ethics and morality can be applied to human experience is a vexed one. Though philosophers have discussed abstract ethical dilemmas for most of recorded history, there appears to be no universal answer to resolve ethical problems. The varied works of philosophers have led to the development of ethical frameworks that may be applied to any particular situation. This essay discusses the views of Milton Friedman on corporate social responsibility.

The answer to an ethical question may differ depending on which moral framework is used. For this reason, taking complex and abstract ethical theories and applying them to the decision-making processes of company directors can lead to unresolvable arguments in boardrooms, restaurants, shareholders meetings, scholarly journals and, of course, the media. Milton Friedman proposed a guiding principle for business ethics in a New York Times article, provocatively titled: “The social responsibility of business is to increase its profits”:¹

… there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays in the rules of the game, which is to say, engages in open and free competition, without deception or fraud.

This statement raises the question of whether directors can act in any way to increase profits. Although Friedman is clear that directors as agents of the business have to play within the rules of the game, this still leaves room for unethical behaviour. Does this mean that directors can act in any way to increase profits?

A further question raised by his article is whether corporations should engage in socially responsible activities. In this essay, Milton Friedman's view is discussed and contrasted with the socio-economic view of Corporate Social Responsibility. It will be argued that directors cannot act in any way to increase profits and that corporations should engage in socially responsible activities as it can be shown that they at least have an indirect positive effect on organisational performance.

Milton Friedman and Corporate Social Responsibility

Friedman argued for a direct form of capitalism and against any activity that distorts economic freedom.² Socially responsible activities conducted by a corporation are, according to Friedman, distorting economic freedom because shareholders are not able to decide how their money will be spent. Friedman thus argues that corporations should focus on those activities that are causally related to company profit, effectively excluding charitable activities that do not directly generate revenue:³

…[there] has been the claim that business should contribute to support charitable activities and especially to universities. Such giving by corporations is an inappropriate use of corporate funds in a free-enterprise society.

Another principle expressed by Milton Friedman is the need to stay within the rules of the game, explicitly avoiding deception and fraud. This principle is further clarified when he writes:⁴

A corporate executive … has direct responsibility to conduct business in accordance with[shareholder] desires …[i.e.] to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.

This quotation implies that Friedman does not proclaim that directors can act in any way to maximise profit as they have to abide by the law and follow ethical custom. He, however, excludes explicitly charitable activities as they do not directly contribute to profit. A good corporation in Milton Friedman's view is not one that undertakes activities only because they are ethically sound, but because they are economically viable. One of Friedman's main arguments for excluding Corporate Social Responsibility from business stems from his views on the ethical spending:⁵

Your money on yourself—spent wisely;
Your money on others—spend wisely but challenging;
People's money on yourself—little incentive to economise;
People's money on other people— the role of government and Corporate Social Responsibility programs.

Friedman argues that it is not appropriate for a corporate executive or director to embark on socially responsible programmes because there is little incentive for prudent expenditure, mainly when one is spending money owed to the shareholders through dividends.

Friedman proclaimed that a corporation is a morally neutral legal construct with maximising returns for shareholders as its single purpose. Directors and executives of a corporation are employed to achieve this sole objective. The only moral responsibility of directors and executives is to meet shareholder expectations, which is to maximise their return on investment.

Friedman's view is akin to social Darwinism, applying the survival of the fittest principle to the market to ensure the best of all possible outcomes. Friedman interprets this principle as the corporation with the highest return to shareholders. When the issue of an electric company that cut supply to a customer for non-payment upon which the customer died as a consequence was presented to Friedman, he applied the Kantian view to justify their actions. He argued that a utility company that does not cut off electricity to non-paying customers would perish as there is no reason for customers to pay their bills. In Friedman's view, disconnecting non-paying customers has to be regarded as a universal maxim, regardless of the specific outcomes. He considers this as ethical because the directors have a moral duty to ensure the survival of the corporation.

Milton Friedman (1978) Milton Friedman Speaks (Video). The Idea Channel.

Socio-economic School

The counterpoint to Friedman's view is developed in the socio-economic school of Corporate Social Responsibility. One of the leading proponents of this view proposed the Iron Law of Responsibility, which holds that the “social responsibilities of businessmen need to be commensurate with their social power”, which was further built upon by Frederick:⁶

… businessmen should oversee the operation of an economic system that fulfils the expectations of the public. And this means in turn that the economy's means of production should be employed in such a way that production and distribution should enhance total socio-economic welfare.

The socio-economic view is a utilitarian argument as emphasises that the total socio-economic welfare of society should be enhanced, rather than focusing on the well-being of shareholders, as Friedman proclaimed. Companies that operate exclusively for the sake of maximising shareholder return and thus do not engage in socially responsible activities are considered unethical in the utilitarian point of view. Following the utilitarian adage of providing the greatest good for the greatest number of people, companies are ethically obliged to participate in socially responsible activities that maximise the total welfare of all stakeholders. There is, however, a problem with applying standard consequentialist theories where we are required to maximise agent-neutral value.

Utilitarianism does not distinguish between people whose utility should be maximised and thus requires a deontic constraint to ensure that maximisation of the welfare of all stakeholders does not jeopardise the long-term prospects of the business. A deontic constraint is a principle that assigns a value to individual agents over others, and in the case of corporate social responsibility, it could be argued that the rights of the shareholders should be protected in preference of the rights of the whole of society.

What would Milton Friedman say about Fair Trade? - Ethical marketing in Schiphol airport, Amsterdam.

Analysis

If corporate social responsibility is detrimental to business, as suggested by Friedman, then shareholders will tend to avoid investing in companies that act socially responsible. There is, however, empirical evidence that this is not the case. Firstly, Friedman fails to acknowledge that acting ethically can be a valuable marketing proposition. By understanding the desires of consumers, a corporation can offer products and services that match their ethical thresholds, thereby adding value to both shareholders and consumers, thus avoiding marketing myopia as described by Theodore Levitt.

Consumers prefer products and services that make claims of social responsibility on product labels.⁷ Herzberg's Motivator-Hygiene Theory theoretically supports this research. Hygiene Factors are minimum conditions that must be met in the workplace to prevent work dissatisfaction. Meijer and Schuyt examined the role of Corporate Social Responsibility in purchasing behaviour and found that for Dutch consumers, corporate social performance serves more as a Hygiene Factor than as a Motivator. Interestingly, this behaviour was not related to household income. ⁸

Secondly, the growth of ethical investments demonstrates that some investors prefer organisations that do not seek profit maximisation by imposing ethical constraints on their operations.⁹

There is also a clear case to be made that Motivator-Hygiene Theory can be applied to shareholders. Executives and directors that behave unethically create significant shareholder dissatisfaction, as demonstrated by the many recent examples or corporate misbehaviour.¹⁰

Lastly, a meta-study undertaken by Griffin and Mahon showed that there is no consensus on a causal relationship between the level of socially responsible spending and business performance or shareholder satisfaction.¹¹

Milton Friedman on Corporate Social Responsibility

Milton Friedman argued vehemently against spending shareholder's money for anything that does not directly contribute to increasing shareholder wealth. He took the Kantian view that directors must look after the interests of shareholders, which seek wealth maximisation. As socially responsible activities, in the opinion of Friedman, reduce wealth, companies should not engage in any charitable activities.

The socio-economic view claims that companies should maximise the good for the greatest number of people. Following a utilitarian strand of thought, this view holds that companies should engage in socially responsible actions because it maximises the wealth of all stakeholders. However, to ensure that financial sustainability of the corporation is not eroded, deontic constraints that recognise the right of shareholders to a reasonable return, need to be put in place.

In conclusion, directors do not have total freedom to maximise profit as they have to act within both the legal and ethical rules of the game. Furthermore, for companies to be genuinely ethical, they should engage in a reasonable level of socially responsible activities as this maximises the wealth of all stakeholders.

Footnotes

Milton Friedman. (1970) The social responsibility of business is to enhance its profits. New York Times 32(13): 122–126. Previously published in Milton Friedman (1962) Capitalism and freedom. University of Chicago Press.

Hammond, J.D. (2003) Remembering Economics. Journal of the History of Economic Thought 25(2): 133–143.

Friedman 1962: 135.

⁴

Friedman 1970.

⁵

Waldman, D.A. and Siegel, D. (2008) Defining the socially responsible leader. The Leadership Quarterly 19(1): 117–131.

⁶

Davis, K. (1960) Can business afford to ignore social responsibilities. California Management Review 2(3): 70–76, p.71. Frederick, W.C. (1960) The growing concern over business responsibility. California Management Review 2(4): 54–61.

⁷

Hiscox, M.J. and Smyth, N.F.B. (2006) Is There Consumer Demand for Improved Labor Standards? Evidence from Field Experiments in Social Labelling. Department of Government, Harvard University.

⁸

Meijer, M.M. and Schuyt, T. (2005) Corporate social performance as a bottom line for consumers. Business & Society 44(4): 442–461.

⁹

Guay, T., Doh, J.P. and Sinclair, G. (2004) Non-governmental organisations, shareholder activism, and socially responsible investments: ethical, strategic, and governance implications. Journal of Business Ethics 52(1): 125–139.

¹⁰

Carson, T.L. (2003) Self-interest and business ethics: Some lessons of the recent corporate scandals. Journal of Business Ethics 43(4): 389–394.

¹¹

Griffin, J.J. and Mahon, J.F. (1997) The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business & Society 36(1): 5–31.

An Introduction to Human Resource Management in Hanoi

Peter Prevos & Ian Watson — Fri, 26 Jun 2009 00:00:00 +0000

A major attraction of travelling to other countries is that people are different to what we are used to at home. A few hours in an aeroplane carries us to places where an incomprehensible language is spoken, exotic food is eaten and almost everything else is different from what we are accustomed to. This is most certainly true for people travelling from Australia to Vietnam. The organised chaos of Hanoian traffic, the colourful markets and the narrow streets in the Old Quarter—everything is different. If everything is different, then it can be assumed that people also manage organisations in a different way and as such also manage people differently.

Hanoi Street Traffic

The economy of Vietnam is transitioning from a centrally planned to a free market system and has moved from a situation of crisis after the war against the Americans to a vibrant, fast-growing nation. The main question for this research is to provide a description of contemporary Human Resource Management in Hanoi, within the context of their transitioning economy.

This project is part of a research expedition to Hanoi, undertaken by the Graduate School of Management of La Trobe University, with assistance from Hanoi University. Data was gathered through site visits to seven local businesses and government organisations and through five confidential interviews with managers of local businesses.

Vietnam has gone through enormous changes since the introduction of Doi Moi, Vietnam's economic restoration policy that commenced in 1986, the government policy that seeks to transition the Vietnamese economy from a centrally-planned to a market-driven economy (Williams 1992). The process of transition in developing economies has a major impact on the way business is adopted (Warner et al. 2005) and the way Human Resource Management practices are conducted.

Several researchers have investigated management styles in Vietnamese organisations and found significant differences between Vietnamese and Western styles of management (Nguyen 2000; Quang and Vuong 2002; Rowley and Abdul-Rahman 2008). Country culture is, however, not a homogeneous phenomenon and significant differences between the work values of North and South Vietnamese management exist (Ralston et al. 1999). This report is thus focused on Human Resource Management in North Vietnam and specifically the capital Hanoi.

A literature review of Human Resource management in Vietnam shows that Vietnamese management styles in the state sector can be “bureaucratic, familial, conservative and authoritarian”, emphasising clear reporting relationships, formal communication and strict control (Quang and Vuong 2002: 52). The familial style was also widely accepted in Vietnamese enterprises; developed from family workshops. In contrast, Quang and Vuong (2002) further found that a participative management style was often practised in the joint venture sector, where expatriate managers brought in Western and Japanese principles of management. Rowley and Abdul-Rahman (2008) researched the existence of convergence towards a Western style of management in Vietnamese Human Resource Management practices. They found evidence of this occurring, but argued against the use of a universal Western-inspired model of Human Resource Management and described an alternative model based on Asian values.

Following the initial review of the literature, two research questions were formulated, both very open, to allow for flexibility during the research:

What is the role of Human Resource Management in transitioning economies?
What are Human Resource Management practices in contemporary Vietnam?

The purpose of the research was not to determine how Human Resource Management in Vietnam relate to business performance, but to examine what Human Resource Management practices are actually used. The qualitative research data is analysed in detail, combined with further literature review. From the analysis, three major topics emerge.

Firstly, Vietnamese managers have a salience for management theories origination outside of Vietnam, particularly Japan and the United States.

Secondly, companies seem to rely on social networks for recruitment. This is in contrast to most Australian organisations, where public advertisements are the dominant vehicle for recruitment. Research by Breaugh (1981: 145) showed that the source of recruitment is “strongly related to subsequent job performance, absenteeism and work attitudes” and that people recruited through newspaper advertisement missed almost twice as many days as those recruited through other sources, such as employee referrals.

The third finding is an indication that performance management in collective cultures, such as Vietnam, is more effective when aimed at improving the collective rather than focusing solely on the individual. Further detailed research is required to validate this hypothesis.

The managerial relevance of this research is to provide insight into Vietnamese Human Resource Management practices for those considering to invest or work in this country. The findings in this paper can also have implications for the way in which recruitment practices are conducted in Australia, specifically the use of social networks to find suitable candidates. The relevance of this report extends also into the academic realm as the secondary purpose of this project is to assess the usability of Grounded Theory in Human Resource Management research.

Literature Review

Human Resource Management in transitioning economies

With the introduction of Doi Moi in 1986, Vietnam has become a country with an outwardly paradoxical system, simultaneously maintaining a socialist system and a capitalist free market economy (Rowley and Abdul-Rahman 2008). This combination of socialism and capitalism seems paradoxical, but the duality of systems fits well within the Daoist inspired perspective of Vietnamese culture (Templet 1998).

A transitioning economy, such as is the case in Vietnam, is defined as one that changes from “plan to market” (Warner, Edwards, Polonsky and Pucko 2005: 3). With the collapse of the Iron Curtain in 1989, many European countries commenced the journey towards a free market economy. Before the dramatic events in Europe, countries in Asia independently started their transition.

China introduced reform after the death of Mao Zedong in 1976 and Vietnam introduced their economic restoration policy in 1986 (Warner et al. 2005). The term 'transition' is somewhat problematic as the end situation is not clearly defined. Given the unpredictability of complex processes such as macroeconomic change, the endpoint of transition cannot be known a priori (Warner et al. 2005). After the collapse of communism in Europe, Fukuyama (1992) euphorically proclaimed that this signified the final victory of the free market economy and that all countries would converge towards a unified economic system. Recent history has, however, falsified Fukuyama's predictions. The rise of Islamic banking as a viable and competitive alternative to conventional systems is a case in point (Khan and Bhatti 2008). The discussion about the nature of macroeconomic systems is complex and outside the scope of this report. Of particular interest to the Human Resource perspective is not so much the end goal, but the process of transition.

Warner et al. (2005) describe the process of transition from a centrally-planned to a free-market-economy in four dimensions (Figure 1). They describe a process that commences with changes in the External Economic Environment, usually the opening of foreign trade into the transitioning country. As the barriers to imports fall and more foreign products enter the market, competition in the internal market increases, which creates a link between the external and internal economic environment. In Vietnam, the start of the restoration process included a liberalisation of the import of consumer goods (Irvin 1995).

Figure 1: Relationship between external and internal economic environments, organisational strategy, structure and managerial culture (Warner et al. 2005: 17).

The second wave of reform is related to the Internal Economic Environment. Increased competition caused by foreign competitors entering the market leads to changes in prices as the balance of supply and demand alters. This process also involves a reform of the financial system of the transitioning country, which is an ongoing process in Vietnam (Dinh 1997; Ninh 2003; Thanh and Quang 2008). Changes in the economic system make capital more readily available and facilitate entrepreneurial activities. One major consequence of the liberalisation of the Vietnamese economy is that the number of State Owned Enterprises (SEO) has been reduced from 12,000 to 6,000 (Warner et al. 2005).

The process of divestment and privatisation of State Owned Enterprises is still underway and is managed by the State Capital Investment Corporation, who seek to divest a further 200 SEOs over the next two years (SCIC 2009). Changes in the external and internal economic environment initiate the third wave of reform, which is related to how organisations achieve their goals. Economic forces and changes in the competitive landscape cause organisations in transitioning economies to reassess their Organisational Strategy and Structure. This is the moment where businesses move from a reactive to a proactive approach in their response to the reforms. Changes in Organisational Strategy and Structure can, however, not be successful unless the Managerial Culture of an organisation evolves into a performance-based system (Warner et al. 2005).

The fourth aspect of the transitional model, Managerial Culture, involves changes in the way individual managers approach their work. The changing roles of managers in transitional economies can be linked to the often cited division of labour for managers described by Mintzberg (1971). In a planned economy, the role of managers is not as significant as in a free market model. For example, in a free market model managers are prime resource allocators, whereas in a planned economy resource allocation is controlled by politicians. This implies that the demands on managers in planned economies are lower than in a market economy. More importantly, the demands on managers in a transitioning economy, including their Human Resource Management skills, are even higher than in an established market economy (Warner et al. 2005).

The model described by Warner et al. (2005) provides a framework to analyse the processes of economic transition in countries where macroeconomic change is taking place. The framework seems to suggest a causality between the four aspects of transition in linear succession. However, each of the four aspects influences each other in a network of interdependence and reiteration of the cycle.

Changes in managerial culture improve the conditions for foreign companies to enter a country as local companies have obtained improved managerial competencies. Changes in organisational strategy and structure lead to changes in the internal economic environment because the institutions that govern the economic environment are also influenced by transitional processes. It could be argued that the process of transition is never ending, blurring the lines between a developed and developing economy in some instances. Human Resource Management plays an active role in the transitioning process as it can play a strategic role by enabling organisations to achieve their objectives (de Cieri et al. 2008; Hanson et al. 2008). In the background of the transition framework, Tradition, Society, Economy and Politics are local influences on this process of change (Warner et al. 2005).

Tradition and society are components of national culture and every management approach is deeply affected by local culture and values because management is, by its very nature, influenced by attitudes on how people are viewed in a culture (Hofstede 1996). In the next chapter, the nature of People Management (Human Resource Management) practices in Vietnam is discussed.

Human Resource Management in Hanoi

Human Resource Management is a wide and varied aspect of business management that can broadly be defined as “the policies, practices and systems that influence employee behaviour and performance” (de Cieri et al. 2008: 4). Human Resource Management practices are, in effect, a combination of applied psychology and sociology and, as such, a reflection of an organisation's view of humanity. They are a reflection of how people view themselves and the society in which they interact. As organisations are embedded in the society in which they operate, they will, therefore, reflect the culture of that country and the effectiveness of Human Resource Management practices will differ depending on the cultural landscape in which they are implemented.

Organisations in developed countries deploy a suite of practices, but it depends on the organisation's structure, goals, customer profile and societal context as to which practices are used. Given the plethora of approaches available to managers, the Western model of Human Resource Management can be considered inherently incoherent, which prompts one to question the notion of 'best practice' (Rowley and Abdul-Rahman 2008; Thang et al. 2007).

It would seem that there is a significant benefit to the HR function of a Vietnamese company becoming familiar with HR management methodologies used in developed nations. This would allow a Vietnamese company to quickly use and apply methodologies that have a good fit with the organisation's goals. However, there is the risk that a certain Human Resource Management practice currently used in Vietnamese companies, whatever those practices may be, has the potential to provide greater benefit to the company than the methodologies used in developed nations. Managers must be aware of sociocultural factors, particularly since the rational systems that originate from the developed economies tend to homogenise cultural distinctions (Hansen and Brooks 1994). The reinterpretation of HR management methodologies by Vietnamese companies may provide unexpected benefit beyond Vietnam. The introduction of total quality management into Japanese firms by W. Edwards Deming and its subsequent reinterpretation within the Japanese context has been not only a boon to Japanese firms, contributing significantly to their rapid development, but has also proven extremely beneficial and applicable to many Western firms (Gill and Wong 1998; Wren 2005). The benefits of documenting and understanding Vietnamese beneficial practices and also understanding modified practices is vital to the improving management, and in the case of this study, Human Resource Management in Vietnam, Asia, developing and developed nations alike.

When examining the Vietnamese context, it is difficult to determine whether there are intrinsically Vietnamese people-management practices without conducting in-depth comparative research. However, as suggested by Meyer (2006), there is a hazard of confirmation bias in the conduct of research when he suggested that: “Scholars working within existing theoretical frameworks may, in fact, limit their cognitive horizons … Empirical tests of hypotheses derived from mainstream theories may confirm the theory, even if the overall explanatory power is weak. On the surface, firm behaviour may be sufficiently similar to allow Western theories to be tested and confirmed, yet this does not imply that the same variables are actually important in the local context.”

The Flow of Human Resource Management Practices

Examining HR management practices in the Vietnamese context has been conducted in the past and has provided some useful information about the attitudes toward HR management in Vietnam. Management styles in the State-Controlled sector have been found to be “bureaucratic, familial, conservative and authoritarian”, emphasising clear reporting relationships, formal communication and strict control (Quang and Vuong 2002: 52). The heritage of family workshops is widely accepted to have given rise to the “familial” style of management that is commonplace in Vietnam.

A participative work style is predominantly found in joint venture organisations (Quang and Vuong 2002) in which the Western style of management has been effectively imported to Vietnam via expatriate managers from Western Countries and Japan (Rowley and Abdul-Rahman 2008). While the work of Quang, Vuong, Rowley and Abdul-Rahman explain some aspects of Human Resource Management in Vietnam, there is a significant gap in scholarly research into Vietnamese Human Resource Management practice. In a broader sense, a model developed by Zhu (2008) seeks to explain how management practices flow between the United States, Europe and Asia (Figure 2). The development of Human Resource Management methodologies in East Asia is predominantly influenced by companies operating in those countries. As economies develop to a point at which Foreign Direct Investment (FDI) is liberalised and subsequently increases, as shown in the model by Warner et al. (2005) (Figure 1), companies import their native Human Resource Management practices when moving to another country. In this respect, Human Resource Management practices are co-imported with foreign capital.

As foreign investment increases, there is also an increase in demand for skilled local labour. This skilled labour needs to be developed within a foreign or local education system. This is equally true for general organisational administration training, such as accounting and finance. Management training provided in Hanoi and in Western Universities appears to be mainly based upon Western management practices. As shown in the model below (Figure 2), the greatest flow of capital, human resources management practice and training is from the United States, where individual values and rewards are promoted (Zhu 2008).

With the strong inflow of foreign Human Resource Management practices as an economy develops, there is the risk that pre-existing practices may be lost. Through a more thorough exploration of existing Human Resource Management practices, two different but linked opportunities may be leveraged. The first opportunity is to promote and emphasise Vietnamese Human Resource Management to improve the success of companies operating in Vietnam. The second opportunity is the flow of beneficial Human Resource Management models from Vietnam to the rest of Asia and Western countries.

Figure 2: Relationship and influences of HR practices between Western and East Asian countries (Zhu 2008).

Vietnamese Human Resource Management Practices—Making the most of an opportunity

If there are pre-existing Human Resource Management practices that work particularly well within the Vietnamese context, there is an opportunity to thoroughly examine these practices and determine what works well within that context. With the opening of the Vietnamese economy to foreign investment there may be a limited window of opportunity to study and explore Vietnamese Human Resource Management, to define the endogenous practices and to document the success of these practices before they are, in effect, inundated by the Human Resource Management practices of the West and other more developed Asian nations such as Singapore and Japan.

There is a genuine and documented risk that education practices are in place that encourages, possibly inadvertently, the wholesale adoption of western Human Resource Management practices in emerging economies of Asia. Asian management scholars, notably from China, receive training in western Human Resource Management practices and are strongly encouraged to adopt these within their organisations. There is also encouragement for these scholars to publish in the top Western Human Resource Management journals (Tsui 2004).

The establishment of research and educational capacity in Vietnamese Human Resource Management training organisations, such as universities, would advance Asian management research. This would allow “scholars to shift their emphasis from theory application to developing new theories, and from benchmarking against Anglo-American models to comparative research within the region” (Meyer 2006: 120).

It is important to ensure that these Vietnamese practices are examined, defined, and incorporated into management training curricula. If there is a wider benefit of these management practices, then incorporation into Western models of Human Resource Management should be encouraged. As training in management theory, particularly with the rise and rise of foreign MBAs bring a greater emphasis on Western management theory, there is the risk that beneficial application of indigenous Human Resource Management may be lost to Vietnam and the rest of the world.

Wider benefit of Vietnamese Human Resource Management

The benefit of Vietnamese Human Resource Management practices being defined and applied in Vietnam is almost self-evident. It is more likely that the application of Vietnamese Human Resource Management practices will be successful and more beneficial because they have been developed within a single societal framework. However, there may be more benefit to understanding Vietnamese Human Resource Management practices. As can be seen in Figure 3, while the predominant flow of Human Resource Management practices is from the United States into Asia and Europe, there are also flows from Asia to Europe and the United States. Understanding Vietnamese Human Resource Management practices are likely to have the benefit of assisting Western countries to better manage their FDI efforts in Vietnam and there may be the additional benefit in promoting Vietnamese Human Resource Management practices in their associated organisations in the West.

The adoption of Western Human Resource Management practices in Vietnam may also have additional benefits outside of Vietnam. It is likely that scholars will apply their Western Human Resource Management training in their Vietnamese companies and will find that some practices will work and others will require modification to be successful. It is the modification of Western Human Resource Management practices in the Vietnamese context that may lead to improved management techniques that are applicable not only to Vietnam but also to Western Human Resource Management much as Deming's introduction of Western Management practices in Japan had significant benefit to the rest of the world.

The way forward

As described above, although some studies have been conducted (Budhwar 2009; Kamoche 2001; Nguyen 2002; Nguyen and Bryant 2004), there is a significant gap in the understanding of Human Resource Management practices that are currently being used in Vietnam. The transmission of Human Resource Management practices from the West does have benefit to Vietnamese organisations but also creates a risk that pre-existing Vietnamese Human Resource Management practices may be lost. It is through research that these practices may be defined, documented, and incorporated into HR training curricula in both Vietnam and the West. This will have a clear benefit for Vietnamese managers and, potentially, HR practitioners throughout the world.

This research project seeks to draw out Vietnamese management practices, to contribute to filling this gap in knowledge and help managers employ tools to assist with maximising the performance and well being of workers throughout Vietnam, Asia and the Western world.

Research Method

Formal interviews have been conducted in five privately-owned organisations, selected by Hanoi University, a research partner of the Graduate School of Management. Two of the interviewees were European managers working for Vietnamese companies. All respondents were university educated males between the age of 30 and 50. Only three interviews were dedicated to Human Resource Management as respondents were shared with other research groups in the Hanoi expedition.

The research was undertaken following the Straussian school of Grounded Theory (Jones and Noble 2007). All interviews were conducted very openly and covering a wide range of topics across the field of Human Resource Management and no hypothesis was defined prior to the data collection process. The questionnaire was loosely followed to allow for an open dialogue between the interviewers and the respondents. Depending on the reaction of the respondent, certain topics were discussed in more detail than was the case with other interviews. This method of interviewing allowed for greater flexibility and for gathering contextually rich information. It also provided an atmosphere in which participants were more open to providing data than in a closed interview.

All participants were fully informed about the purpose of the interview by means of a Participant Consent Form. This contained, besides the consent form, also a form to withdraw consent and an outline of the general purpose of the expedition. This form did, however, not contain a return address to submit the request and as such, no withdrawals have been received. One participant was willing to be interviewed but refused to sign the consent form. The interview continued, but the data has not been used in the report. All data obtained from the interviews remain confidential. Participating organisations and managers have been deidentified in this report. The raw research data is kept by the authors and will be destroyed after the results of the subject have been published by the University.

A collective application for all research groups in the Hanoi expedition was submitted to the University Human Ethics Committee (UHEC). The application excludes recording of the interview. No verbatim transcripts have thus been prepared and analysis relied solely on notes taken during the interview. Although some proponents of grounded theory argue against taping and transcribing of interviews (Charmaz 2006), it was found to be a restrictive requirement for this research. In one interview, the respondent was a German expatriate who only spoke Vietnamese and German. Since no Vietnamese translator was present, one of the researchers conducted the interview in German, simultaneously translating to the other researchers and taking notes. The directive not to record interviews restricted the research and constrained the quality of the data as the dynamics of the interview not always allowed accurate note-taking.

After each interview, the raw notes were transcribed by both researchers and in those cases where both were present, notes were compared to ensure consistency. The raw data were collated into a single document and coded in accordance with the standard procedures in Grounded Theory, as described in the previous chapter. After Coding, seven categories emerged from the data, some of which with their own subcategories. Sorting of all data revealed that some categories are linked to each other (such as Motivation and Reward).

A semantic diagram was used to prepare a memo for each category. Extensive memoing has been undertaken during the expedition itself and the analysis was substantially complete upon returning to Australia.

Figure 3: Semanic diagram.

Based on this information, three categories were selected for further analysis, i.e. Vietnamese Style Human Resource Management, Recruitment and Motivation. Further literature review on the selected categories has been undertaken, enabling the formulation of three hypotheses. The limited amount of data did not allow drawing any firm conclusions about these phenomena. The last step in the research was the identification of a Core Category. It was found that the Core Category, binding all observed phenomena, is Collectivism. In order to stay as close as possible to the original words of the respondents, the raw data has been transcribed into four vignettes, which are provided in the next chapter, after which a detailed analysis of the data is provided.

Results

Company A

Mr A is the manager of a business department in a large distribution company based in Hanoi. The core competency of this organisation is the export and import of rice. In excellent English, Mr A explained that the business has recently horizontally expanded into the retail industry and currently operates some convenience stores and a supermarket in the city. They are committed to expanding their presence in retail but are on a steep learning curve.

They struggle with overseas competition because foreign companies have easier access to capital, better knowledge of the retail industry and better Human Resource Management systems. The main issue is that overseas companies have good training models and a “HR structure”. Company A is developing and implementing a suitable HRM approach with the assistance of consultants. They use Japanese and Western models as a reference, but select only those aspects they find suitable. Mr A smilingly said: “Western or Japanese model is not suitable”, but he did not provide details on how he determines which methods are more likely to be suitable.

Company B

Mr B is the manager of a large department store that focuses on home improvement, furniture and related products. He was expatriated from Germany a few months prior to the interview, which was conducted in German. He experiences difficulties in transforming the business because Vietnamese managers shy away from internal conflict and are always looking for harmony. Mr B is of the opinion that some internal conflict is required to make the business more successful. When asked his view on what it takes to be successful an European manager in Vietnam he resolutely answered: “adapt or die”.

He believes that the rate of social change in Vietnam is very fast and he anticipates social unrest because of this. Not in the form of riots or demonstrations, but through “passivität”, best translated as passive resistance against capitalist values.

He experiences trouble motivating local staff and showed statistics that the labour cost to turnover ratio in Vietnam is more than four times higher than in Germany. One of the reasons for this is that almost half of the store's employees are security staff. Shoplifting is a big problem and to deter people from stealing, photos of shoplifters that were caught are displayed at the store entrance. Mr B believes this works as a deterrent because it is a way to ensure that shoplifters literally lose face.

Individual productivity is, as shown by the above figures, very low in his business. Mr B believes this is a leftover of the transition from a Planned Economy, with high job security and no drivers to increase productivity. Being from former East Germany, he has seen a similar transition. However, he is of the opinion that the uptake of capitalist values by his staff is going slowly compared to his own experience. He said that the Vietnamese have an expectation of a job for life, without the requirement to be productive.

The business is introducing Key Performance Indicator (KPI) based salaries. He believes, however, that it is more important to reward subjective measures first because these are most lacking, i.e. keeping the store clean, correct merchandising and so on, rather than focusing on sales volumes. This relates back to the problems with staff motivation mentioned earlier.

Figure 4: Word frequency distribution in the interviews.

Company C

Mr C is the Finance Manager of a privately owned distribution and logistics company that maintains trucks and warehouses, employing about 2,000 people.

When Company C recruits staff, they follow a three-step process. First, they review existing staff, then they use informal networks to find suitable people. Last option is to use a Headhunter, i.e. external recruitment agencies. The selection process depends on the vacancy they seek to fill. For middle and lower staff, the process involves psychological testing (IQ) and practical tests to ascertain whether they are suitable. For high-level positions, no testing is undertaken and Company C relies on references. Interviews with applicants are undertaken after the testing or obtaining references.

An important selection criterion for Company C is the applicant's perceived adaptability to their business culture. They target Vietnamese people that work at multinational corporations (MNC) because of their experience with working in an occidental management environment. However, these people find it hard to fit back into a Vietnamese business after working for an MNC.

The main difference between Company C and an internationally owned company is that in the latter, everything is very procedurised by using “SOP or something like that”, they follow “steps A, B and C”. In Company C there are no strict procedures to be followed and some people, particularly those that have worked for an MNC for a while, “get confused about what to do next”. They need staff who are able to work in this environment.

Company C wants to upgrade their HR systems to match that of MNCs that operate in Vietnam. They believe the best way to achieve this is to use a western HRM model, adapted to Vietnamese culture. Mr C reads Western management textbooks but chooses selectively on what to apply. They try to duplicate the systems used by MNC in Vietnam.

In Company C, lower and middle staff follow training on the job. They are developing the “soft skills” of middle management. There are no cultural issues with implementing western HRM models in the lower echelons because “lower people follow orders”. Vietnamese people are not fond of personal development beyond a certain point. There is currently no culture of “learning forever”. This is the old attitude and Mr C believes that a future recession will change that mindset.

Salaries are based on Key Performance Indicators, but they are different for each department. In sales, 20–30% of salary is dependent upon achievement sales volumes. Most staff members have individual KPIs. Secondary conditions such as annual leave, healthcare and share options exist for higher level positions. Tertiary conditions focus around staff outings, which is a Vietnamese tradition.

Company D

Company D is active in the hospitality industry and operates several pubs and restaurants in Hanoi and Ho Chi Minh City, targeting Western expatriates and travellers. Mr D is the part owner and manager of the business. He is originally from the United Kingdom and moved to Hanoi several years ago. He speaks Vietnamese and is able to communicate with staff in their own language. Mr D has no formal management education and has a background in retail and pubs in England. This is where he has obtained a keen insight in the marketing of services.

One of the other owners of Company D also owns a charity in which street children are provided with an opportunity to be trained in hospitality. Through this connection, Company D is operated with a strong sense of social corporate responsibility. There is a strict separation between the charity and the business and they thus do not hire graduates from the charity. Company D recruits most of its staff from the groups of people that were not able to obtain a place in the charity training program but are considered suitable. The selection is followed by a conversation with Mr D, another manager and a Vietnamese staff member. The candidate has already been selected, so this is only an introduction to the business. Company D occasionally uses social networks to find new staff and expert jobs, such as accountants, are advertised. The success of their approach is illustrated by one girl who used to sell eggs in the street, became a cashier and is now studying to be an accountant.

The company focuses strongly on training and Mr D proudly mentioned that a former waitress, who is now the training manager of Company D, will soon move to Melbourne to undertake hospitality training at TAFE. Most new recruits are about 20 years old and have a basic knowledge of English because they used to shine shoes or sell lighters and so on. Because most new recruits are former street children, training of new staff members with the basics, including personal hygiene. All training is undertaken in-house through a mentoring system and for large groups by the training manager.

They just opened a new restaurant, which took six months to train all staff. New recruits have three months to learn the trade and start “busting tables and cleaning ashtrays”. Mr D is developing a staff handbook in Vietnamese and English. The handbook focuses on their rights and provides an overview of organisational values.

Company D provides a wide range of benefits, including help with accommodation, interest-free loans, vaccinations, English classes, a medical program (they even paid for heart surgery for one staff member) and a medical checks. They also provide a uniform and some new clothes for new staff, because they have no wardrobe of their own.

Some successful staff have been given a share in the company as a bonus. These are full shares which make them eligible to become a company director. They also provide free meals to staff when they are at work. Salary is performance-based, which is measured subjectively through conversation with their mentor. Some staff have doubled their salary in three months. Every two years they take their staff on an all expenses paid trip. They also provide transport to weddings and funerals.

It is a company rule that staff are not supposed to stand still and always look for an opportunity to provide customer service. Mr D said that Vietnamese jobs are usually quiet inactive and it takes some effort to ingrain this behaviour. Mr D also recounted an episode where he publicly escorted a staff member out of the premises because he was caught stealing. This caused problems for him because both the staff member and he lost face.

Analysis

From the data, seven categories emerged, some with their own subcategories:

Vietnamese Style Human Resource Management
Reward (Primary, Secondary and Tertiary)
Recruitment (Social Networks and Formal)
Legal
Training & Development (Western Education and In-house provision)
Motivation
Culture (Face and Collectivism)

Analyses of the data showed that Reward and Motivation are closely related and that three categories, Vietnamese Style Human Resource Management, Recruitment and Rewards & Motivation, provided the best opportunities for theory building.

Vietnamese Human Resource Management

A recurring topic in all interviews was the existence and nature of a Vietnamese style of Human Resource Management. Most companies were in the process of researching Western and Japanese Human Resource Management methodologies and implementing these in their own organisations. There was a strong perception among the interviewed Vietnamese managers that the Western model of Human Resource Management is something to strive for. Although, methods were used selectively to ensure organisational and cultural fit.

Interviewees were not able to pinpoint the type of methodologies they believed to be suitable in a Vietnamese context and which were not. Vietnamese managers are embedded in their own culture and are not necessarily acutely self-aware of the differences between occidental and oriental culture. The fact that they have a personal preference for a certain management approach is an illustration of the culture in which they are embedded.

The need to research the suitability of existing management methodologies in emerging countries has been identified by several scholars (Budhwar 2009; Meyer 2006; Rowley and Abdul-Rahman 2008). Recent research by Thang et al. (2007) has shown that foreign practices which tend to be in harmony with the norms, beliefs and assumptions of Vietnamese culture have the best chance to improve business performance. Practices that are based on confrontation or impose ethnocentric methods are likely to fail. This was illustrated by Mr B, who lamented that Vietnamese managers in his organisation shy away from confrontation, something which he saw as necessary to create a healthy dialogue. This is consistent with the pluralistic approach preferred in Europe, as shown in Figure 5

Another aspect that was mentioned in several interviews and site visits was management training. Most managers expressed a preference for a Western-style management education. Larger companies send their people overseas to further their education. This aligns with the common Vietnamese tendency to prefer foreign products over locally made things. This attitude can be traced back to the time before Doi Moi, typified by a lack of quantity and quality of consumer goods (Thang et al. 2007: 125). The popularity of Western management education in Vietnam can also be seen as a result of the many development projects over the past decades, providing management education (Napier 2008).

From the observed salience for foreign Human Resource Management approaches a first hypothesis can be formulated.

H1 : Vietnamese managers have a preference for adopting Human Resource Management practices with a foreign origin.

This hypothesis may actually be proven incorrect in that the co-importation of capital and Human Resource Management practices outlined in Chapter 3 has led to Western Human Resource Management training being more widely available rather than being preferred. No firm conclusion can be drawn from the obtained data.

Reward & Motivation

Reward mechanisms can be categorised into three distinct types. Primary reward is the monetary remuneration an employee receives. Secondary reward refers to all non-financial entitlements, such as annual leave, lunch breaks and so on. Tertiary reward refers to the social benefits of being part of an organisation, but which are not part of the formal employment relationship. Primary reward mechanisms outlined in the site visits and interviews all follow methodologies very familiar to those used in Australian organisations, i.e. a focus on individual reward. All companies use a salary scale to value different jobs and maintain a bonus system to reward the performance of staff. A secondary reward was provided in all organisations in accordance with the Labour Laws of Vietnam (Chee and Dung 2008).

Most interesting was the emphasis of many organisations on tertiary rewards, such as staff outings, interest-free loans, transport to weddings and funerals, buying the occasional unexpected gift and also providing a “pleasant workspace” was mentioned. One company that excelled in this area was Company D. The businesses they manage are well known among travellers and expatriates in Hanoi and Ho Chi Min City because of the excellent service provided by staff. Staff seem to be much more motivated to provide great service than in other Vietnamese businesses. For example, in Company B, the manager expressed that staff were not self-motivated to provide service, which he attributed to Vietnamese culture. While Company D focuses on tertiary rewards and is achieving great results, Company B focuses on individual rewards and faces motivation problems. From these observations a second hypothesis can be formulated:

H2 : In collectivist cultures, tertiary rewards are more likely to motivate staff than primary and secondary rewards.

The hypothesis is theoretically supported through Vroom's Expectancy Theory (Robbins and Judge 2007) and empirical research that indicates that Vietnam and most other South-East Asian countries are collectivist in nature (Hofstede 1993).

According to Vroom, who follows a behaviourist model of psychology, the “strength of a tendency to act in a certain way depends on the strength of an expectation that the act will be followed by an outcome and on the attractiveness of that outcome” (Robbins and Judge 2007: 208). Vroom's model uses three concepts to explain motivation.

Figure 5: Expectancy Theory (Robbins and Judge 2007: 208).

Expectancy: the likelihood, as perceived by the individual, that exerting a given amount of effort will lead to performance.
Instrumentality: the degree to which the individual is convinced that performing at a certain level will lead to desired rewards.
Valance: the degree to which organisational rewards match an individual's personal goals.

The basic utility of Expectancy Theory is that, in order to enhance the performance of individuals, rewards need to be linked to the required behaviour and that these rewards are anticipated and wanted by employees. An employment relationship is underpinned by principles of mutuality and reciprocity (Heap 2008) in that employees expect a return for their efforts, as outlined in Expectancy Theory.

A return can be provided to employees on three levels, as outlined above. Following the principle of Valance in Vroom's theory, rewards in a society with a predominantly collective nature should reflect this. In other words, a focus on tertiary rewards and social benefits will theoretically lead to a better performance outcome.

The data obtained in this research does, however, not provide sufficient evidence to confirm or falsify this hypothesis and further researched is required to test its validity.

Recruitment & Selection

The third result emerging from the data is the preference for social networks in the recruitment of new staff, this contrasts with Australian firms where newspaper advertisements are the prevalent way to attract applicants to new positions (Wooden and Harding 1998). The third hypothesis is thus:

H3 : Recruitment in countries with a collective nature, such as Vietnam, is primarily conducted through social networks.

The purpose of recruitment is to communicate the existence of a vacancy to those segments of the job market that an organisation seeks to recruit from (de Cieriet al. 2008). The recruitment process is influenced by several factors, as illustrated in Figure 6.

It is the recruiter's task to increase the likelihood of a match between the applicant and vacancy characteristics, in other words, to achieve job fit'. Job fit is bidirectional as vacancy characteristics need to match applicant characteristics and vice versa. Only a bidirectional job fit ensures that the incumbent will be in the best possible position to contribute positively to the organisation. This is achieved by controlling the three influencing factors. Human resource policies affect the characteristics of the vacancy (job design). Recruitment sources determine which segment of the job market is targeted and thus influence applicant characteristics. The recruiters themselves also influence the job choice through their impact on both job design and applicant characteristics. Using social networks as a source of recruitment influences applicant characteristics because the criteria upon which the social network is defined determine who will be considered for the position.

Breaugh (1981: 145) showed that the source of recruitment is “strongly related to subsequent job performance, absenteeism and work attitudes”. People placed through universities and to a lesser extent those sourced through newspapers were “inferior in performance” to applicants who were sourced through advertisements in professional publications (Breaugh 1981: 145), which is a form of social network. People recruited through newspaper advertisement missed almost twice as many days as those recruited through other sources, such as employee referrals (Breaugh 1981). The field study was conducted in one particular research organisation in the USA.

Figure 6: Factors influencing the recruitment process (de Cieri et al. 2008: 260).

A possible explanation of this phenomenon is the Individual Difference Hypothesis in which it is stated that recruitment sources differ in the types of the applicants they reach (education, class, self-image and so on), which results in different performance outcomes. Following this theory, people recruited through employee referrals may be more capable or have a better cultural fit than individuals recruited from public sources because current employees and other members of the social network screen potential applicants before they consider them for a position in the organisation as their own reputation is at stake (Breaugh and Starke 2000).

It should be noted that recruitment and selection are two distinctly different aspects of Human Resource Management. Although people are recruited because they are a member of a social network, this does not imply that they are necessarily selected because of this. All respondents acknowledged that an interview formed part of the selection process and in some instances, psychological and technical aptitude tests were used to determine the most suitable candidate.

Core Category

Following the analysis of the identified categories, a core category emerged. The core category, i.e. the concept that ties the findings together, is the collective nature of Vietnamese society. This concept has been widely discussed in management literature, spearheaded by the research undertaken by Dutch sociologist Geert Hofstede (1983).

Collectivism emphasises human interdependence and the importance of a group. On the other end of the spectrum, individualism is the degree to which people give primacy to the individual over the group to which they belong. Countries with a high level of individualism (IDV, see Figure 7), such as Australia, prioritise individual rights over the rights of the collective. In countries with low scores in IDV, the collectivist societies, such as Vietnam, the rights of the individual are often subordinated to the collective (Hofstede 1983, 1993). The preference for using social networks as a means of recruiting staff is an expression of the collective nature of Vietnamese culture. Although this research was conducted with limited data, the preference for social network recruiting was also confirmed in many informal conversations with Vietnamese managers not partaking in the interviews.

The use of social networks is contrasted with the preference of newspaper advertisements in Australian firms, as identified by Wooden and Harding (1998). This is in line with the core category as Australia is considered an individualistic country (Figure 7.3) and newspaper advertisements focus on random individuals. Collectivism was apparent in how businesses manage staff performance. There seems to be a focus on tertiary rewards, which are also an expression of the collectivist nature of Vietnam. With regards to Primary and Secondary rewards, Thang et al. (2007) investigated the transferability of occidental management practices into Vietnam and found that individualism is one of the underlying assumptions for a pay-for-performance system. The long-held Confucian collectivist values in Vietnamese society will, however, make it difficult for these methods to be successful. A pay for performance system is more likely to be applicable to the younger generations. As the per capita, Gross Domestic Product of Vietnam rises, the level of individualism is also expected to rise, as shown by Hofstede (1993).

Figure 7: Cultural dimensions for Australia and Vietnam (Hofstede 2009).

Conclusions

They say you come to Vietnam and you understand a lot in a few minutes. But the rest has got to be lived.

Graham Greene (1977), The Quiet American.

The research in Vietnam and associated literature review has unearthed some interesting prospects for further research into Human Resource Management in this country.

Firstly, even only a very limited amount of interviews were conducted, the contextually rich nature of the data and using the Grounded Theory approach allowed for the formulation of some promising hypotheses. It is, however, because of the limited number of observations that were able to be made that the results can only be considered hypotheses at this time. Grounded Theory is thus a potentially successful method for researching Human Resource Management practices in Vietnam. Given that many scholars recommend in-depth research in this region an opportunity is created to enhance the findings of this report through follow-up studies.

The first hypothesis states that Vietnamese managers have a preference for adopting Human Resource Management practices with a foreign origin. This preference may be because of a perceived superiority of foreign models or simply because Vietnamese practices are not very well documented. This illustrates the importance of foundational research into the actual methods used in Vietnamese organisations in order to be able to enhance the global body of knowledge in this area.

The second hypotheses, which states that in collectivist cultures, tertiary rewards are more likely to motivate staff than primary and secondary rewards, is based on only two observations but is supported by Vroom's expectancy theory and Hofstede's work on national cultures. Should this assertion be proven to be correct after subsequent research, it may have a significant impact on how both Vietnamese and foreign companies structure their reward portfolio.

Lastly, the finding that recruitment in the researched organisations is primarily conducted through social networks, combined with earlier research on correlations between recruitment source and staff performance, warrants further research. Australian organisations cast wide nets in their search for new staff members by advertising in newspapers distributed to anyone with an interest in local matters. If this hypothesis is confirmed, a model can be developed to manage social network recruiting, which could possibly lead to lower recruitment cost. This would be a recognition of Vietnamese Human Resource Management and alleviate the need to introduce models from the USA, which have shown to be not always successful.

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Recruitment Woes—Management Gets the Employees it Deserves

Peter Prevos — Thu, 30 Apr 2009 06:19:02 +0000

“Management gets the employees it deserves”, Carl snarlingly uttered as he returned to his desk. Natasha, with whom he had shared a cubicle for longer than they cared to remember, turned around. “What makes you say that” What happened? Carl was obviously still upset as he threw his hands in the air. “This new guy is useless, why do they hire people like that” …

This situation is a type of conversation that can be heard in offices around the world. On what grounds do organisations hire people and when they are hired, how do they ensure that they contribute to organisational goals? That an organisation gets the employees it deserves implies a causal relationship between the actions of managers as representatives of their organisation and the performance of employees.

One of the first to research these questions in a systematic way was Frederick Taylor (1911). Taylor himself certainly got the employees he deserved. His Spartan approach, combined with a negative view of labourers, spawned a lot of unrest and workers literally threw spanners in the works. Taylor's controversial practices even became subject to a congressional investigation. Contemporary human resource management has a more balanced view on recruitment and how people can be managed to increase the likelihood that organisational objectives are achieved. Human resource management well practised can potentially give a significant advantage over competitors (de Cieri et al. 2008: 48).

The importance of selecting and retaining suitable people is even more important in an economic recession. Brown (2008: 17) wrote in this context that:

it is hard to recruit and retain good staff. If [during the recession] you let them go, it could make or break a company's reputation.

This essay discusses the ways in which an organisation conducts recruitment, selects, motivates and retains the staff it needs, rather than the staff it deserves. The first section discusses the importance of recruitment and selection. The second section provides a cursory overview of performance management. It will be argued that organisations indeed get the employees they deserve because the extent to which employees contribute to organisational objectives is directly related to the quality of the effort invested by an organisation to recruit, select and motivate staff.

Recruitment and selection are the practices of an organisation by which it identifies and attracts people considered to be able to contribute to the achievement of the organisation's objectives. The recruitment process is aimed at communicating the existence of a vacancy to those segments of the job market that an organisation seeks to recruit from.

In the selection process, appropriate mechanisms are used to choose the candidate that is most likely to contribute to the organisation's objectives (de Cieri et al. 2008).

The recruitment process is influenced by several factors. The main objective of Recruitment and Selection is to increase the likelihood of a match between applicant and vacancy characteristics, or job fit. Job fit is bidirectional as the vacancy characteristics need to fit the applicant characteristics and vice versa. Only if the fit is bidirectional will the incumbent be in the best possible position to contribute positively to the organisation. This is achieved by controlling the three influencing factors. Human resource policies affect the characteristics of the vacancy (job design). Recruitment sources determine which segment of the job market is targeted and thus influence applicant characteristics. The recruiters themselves also influence the job choice through their impact on both job design and applicant characteristics.

Factors influencing the recruitment process (de Cieri et al. 2008: 260).

Human resource policies are the guiding principles that shape how an organisation wishes to undertake its human resource practices. They are the starting point of all systems, including workforce planning practices (State Services Authority 2007). The characteristics of the vacancy, such as position objectives, responsibility level and remuneration are determined in the workforce planning process.

Traditionally, recruitment and selection is aimed at finding an applicant that matches the job requirements. Some organisations use a juxtaposed approach by designing a job to suit a candidate (Fox 2000). Lee (1994) and Mackinlay (1993) advocate a mutual adaptability between the organisation and the candidate to ensure the best possible job fit. From this it can be concluded that Human Resource policies need to be flexible to allow the recruiters to achieve the best outcome.

The source of recruitment influences applicant characteristics because each source istargeted towards a certain segment of the job market. Research by Breaugh (1981: 145) showed that the source of recruitment is strongly related to subsequent job performance, absenteeism and work attitudes. Breaugh (1981: 145) showed that people placed through universities and to a lesser extent those sourced through newspapers, were inferior in performance to applicants who were sourced through advertisements in professional publications. People recruited through newspaper advertisement missed almost twice as many days as those recruited through other sources, such as employee referrals (Breaugh 1981).

However, Wooden and Harding (1998) reported that the most popular and most successful recruitment source in Australian private industry, as measured by the number of filled vacancies, are newspaper advertisements. One possible explanation of this phenomenon is the Individual Difference Hypothesis in which it is stated that recruitment sources differ in the types (education, class, self-image and so on) of applicants they reach, which will result in different outcomes.

Following this hypothesis, people recruited through employee referrals may be more capable than individuals recruited from public sources because current employees will screen potential applicants before they consider them for a position in the organisation as their own reputation is at stake (Breaugh and Starke 2000).

Recent research has shown that managers in Hanoi prefer informal networks, such as family members of existing staff, as a source of recruitment (Watson and Prevos 2009). Vietnamese managers perceive hiring from the extended network of staff to achieve better organisational commitment. The effectiveness of informal networks as a prime recruitment source is evidenced by the original research by Breaugh (1981) and would seem to support the Individual Difference Hypothesis.

Recruiters influence vacancy characteristics because they are often involved in the design of the jobs to be recruited. The psychological traits of a recruiter also influence applicant characteristics. De Cieri et al (2008) identify warmth and informativeness as important aspects. In general, applicants respond more positively to recruiters with these traits. It is a recruiter's task to provide an atmosphere in which applicants are able to fully explore their suitability. Many people are nervous in an interview situation and the recruiter sometimes needs to help the applicant by ensuring the requirements of the position are clearly communicated.

The recruiter also passively influences applicant characteristics because they interpret information provided by the applicant and determine to what extent they match the vacancy requirements. From a philosophical perspective, the recruitment process involves a hermeneutic in which the applicant and the recruiter need to interpret each other's expectations by processing the information provided.

The fact that the recruitment process is undertaken in a power imbalance (Heap 2008) adds an additional layer of complexity because both parties are rarely prepared to be fully open to each other, which requires special communication and interpretation skills of the recruiter.

Many selection methods such as interviews, psychometric testing, physical ability tests and situational exercises, are at the disposal of recruiters. There are five main issues to be considered regarding these methods (de Cieri et al. 2008). The measures used to determine the best candidate need to be consistent and reliable and as much as possible free from random error.

Secondly, the outcomes need to be generalisable and free from contextual influences. The usefulness or utility of the selection process is the third important point. Penultimately, any method used during selection needs to be tested for legality, specially regarding possible discrimination of applicants. Last aspect is the validity of the selection method, which is the extent to which a measure used in selection assesses all relevant aspects of future job performance.

The validity of a selection method is determined by measuring the correlation between an applicant's test scores and their future performance on the job (de Cieri et al. 2008). Validity can, however, only be determined for quantitative methods, such as psychometric testing and physical testing. Personality inventory tests are a popular quantitative method for personnel selection. An applicant's personality inventory is considered to influence performance as research shows that successful managers share a large number of personality traits. However, the validity of personality testing has not been generally supported in research. Besides issues with validity, there are also legal impediments as a personality test can be perceived as an invasion of privacy (Scroggins et al. 2009).

In qualitative methods, the predictive validity is much harder to measure and is influenced by the characteristics of the recruiter and their ability to communicate job expectations and interpret information provided by the candidate, as discussed above.

Given the issues sketched above, no recruitment and selection process is consistently able to deliver a perfect fit between vacancy characteristics and applicant characteristics. Also, the dynamic nature of business requires people to adapt to new situations not foreseen during the recruitment and selection process. Thus, in the quest of having the best possible employees, recruitment and selection are only the first step. After new staff have been hired, ongoing performance management, which can be defined as the “process through which managers ensure that the activities and outputs of employees are congruent with the objectives of the organisation” (de Cieri et al. 2008: 43), is required. The objective of performance management is to motivate staff o consistently undertake their daily tasks with intensity, persistence and effort (Robbins and Judge 2007).

A plethora of motivation theories has been proposed over the past decades. One of the most widely accepted models is Victor Vroom's Expectancy Theory. According to Vroom, the “strength of a tendency to act in a certain way depends on the strength of an expectation that he act will be followed by an outcome and on the attractiveness of that outcome” (Robbins and Judge 2007: 208). Vroom's model uses three concepts to explain motivation.

Expectancy: the likelihood, as perceived by the individual, that exerting a given amount of effort will lead to performance.
Instrumentality: the degree to which the individual is convinced that performing at a certain level will lead to a desired outcome.
Valance: the degree to which organisational rewards match an individual's personal goals.

The basic utility of Expectancy Theory is that in order to enhance performance of individuals, managers should link rewards to performance and that these rewards are deserved and wanted by employees. An employment relationship is underpinned by principles of mutuality and reciprocity (Heap 2008) in that employees expect a return for their efforts, as outlined in Expectancy Theory. A return can be provided to employees on three levels. A primary employment condition is the remuneration employees receive in return for their labour. Many systems have been developed to shape remuneration in order to motivate employees to behave in a certain manner.

However, research undertaken by Hertzberg has led him to conclude that money is a limited means of motivating staff. He classified salary as a Hygiene Factor, rather than a Motivator, which means that remuneration keeps people from being dissatisfied, but only has limited utility in motivating staff to improve performance (Robbins and Judge 2007).

Secondary employment conditions, such as annual leave are also considered Hygiene Factors, specially in countries where these are considered basic entitlements. The tertiary level of employee rewards relates to those aspects of the employment relationship that are usually not controlled through a formal agreement. They can be social benefits, work conditions or more ephemeral aspects of a working relationship such as a sense of achievement or recognition. An example of a company that uses tertiary benefits to motivate and retain staff is Google. Their offices are known for their informal atmosphere, including many opportunities to relax and play games (de Cieri et al. 2008).

Providing better tools of the trade can also be a means to motivate staff and improve performance. One example is knowledge management which, besides having the ability to create a competitive advantage through the creation of intellectual property, also assist individuals to perform better because effective knowledge management systems may relieve individuals of the burden of reinventing the wheel, freeing them to engage in more creative tasks (Child and Shumate 2007: 30). Research by Child and Shumate (2007) lead them to conclude that knowledge management that is based on tacit knowledge held by individuals, rather than moving that knowledge to repositories, has a positive effect on team performance.

Managers should focus on communication training, relationship building and other social knowledge management techniques. This research illustrates that opportunities to motivate staff and improve organisational performance go beyond traditional primary and secondary reward systems. Besides recruiting, selecting and managing the performance of staff, it is also imperative for organisations to minimise staff turnover. An employee leaving an organisation can cost about two times their annual salary to replace (Eaton 2003). Many professional firms record staff turnover among young professionals of around 25%. The most often cited cause for this is that the younger generations have high expectations of their career and actively seek out opportunities to improve their situation. The younger generation have a whole-of-life orientation, rather than a focus on work-life balance and for them work is just another aspect of their lives that has to match the rest of their existence (Heathcote 2004).

Many solutions have been proposed to maximise staff retention. For example, organisations offering family-friendly policies are successful at retaining employees, even if individuals did not use the policies themselves (Eaton 2003). However, “few scholars have demonstrated the mechanisms through which such policies function (or do not) to enhance firm performance” (Eaton 2003: 163). Eaton (2003) also found that control over work time, flexibility and pace of work are important determinants in creating positive levels of commitment and productivity. Other possible solutions to retain staff are talent management, including career customisation, work solutions such as changing the design of an organisation or moving into virtual workplaces; and having clear and powerful employee value propositions (Brown 2008).

In conclusion, the statement “management gets the employees it deserves” is correct as 'deserving' implies that the quality of staff is related to the quality of the effort an organisation invests in Human Rescource Management. The methods and strategies discussed in this essay show that an organisation can have active control over the employees it gets. More specifically, an organisation needs to be actively involved in developing Human Resource policies to ensure jobs are designed to maximise the likelihood of a good job fit.

Recruiting also needs to be undertaken through appropriate sources to ensure that the right segment of the job market is targeted and recruiters need to be selected and trained to ensure the best outcome in the recruitment process.

Selection methods also have an impact on the ability of an organisation to the find employees it wants. Finding the right method is problematic in light of issues with reliability and validity. Quantitative methods, such as personality testing, can give a false sense of validity and qualitative methods suffer from hermeneutic problems. To mitigate these issues, recruiter training and experience are the most effective means to enhance the selection process.

Lastly, motivational theories show that employee reward, specially beyond remuneration can have a positive effect on staff motivation and performance. Organisations need to actively seek out what type of reward works best with their staff and ensure that the benefits for high performing staff are communicated.

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Taylor, Frederick Winslow (1911) The Principles of Scientific Management.
Wooden, Mark and Harding, Don (1998) Recruitment practices in the private sector: Results from a national survey of employers. Asia Pacific Journal of Human Resources 36(73): 73–87.

Searching for the Essence of Entrepreneurship — A Misguided Quest

Peter Prevos — Fri, 20 Feb 2009 10:02:26 +0000

Public figures such as Henry Ford, Richard Branson, Dick Smith and Donald Trump influence the conventional notion of the entrepreneur as a unique individual. Entrepreneurs have achieved celebrity status and have given rise to many myths about entrepreneurship. One of these myths is the idea that the essence of entrepreneurship is an innate ability that can not be acquired and that business instinct is more important than business skill.¹

Because of their prominent status in society, entrepreneurs have become the heroes of contemporary society, admired as heroes for their ability to accumulate wealth and create economic prosperity.²

Entrepreneurs are the heroes of society

Academic discourse about entrepreneurship is divided and sometimes even confusing.³ Are entrepreneurs guided by a Protestant ethic, as proclaimed by Max Weber or are they, following Schumpeter, unique individuals exercising mental freedom? Do entrepreneurs have a high need to achieve (n-Ach), following McClelland's theory of motivation, or are they, as argued by de Vries, victims of a traumatic childhood? Who are these heroes of contemporary capitalism?

In this essay, entrepreneurs from four continents are discussed and contrasted, guided by the literature on entrepreneurship. Entrepreneurs from different continents are chosen to provide a cross-cultural perspective on the phenomenon. Freddy Heineken is included because of his controversial place in Dutch society. Michael Dell is often touted as the quintessential entrepreneur. Australian Peter Terret provides a contrast to Heineken and Dell because of the modest size of his venture. Lastly, Vietnamese entrepreneur Le Khac Hiep represents a non-Western perspective.

The available information about these people is used to deconstruct the mythology of the entrepreneur, in search of the essence of entrepreneurship. The essay finds that the essentialist approach to entrepreneurial studies can only provide limited insight and that narrative analysis of entrepreneurial biographies should be the preferred method to study this phenomenon. The managerial impact of this conclusion is that the most effective way to become more entrepreneurial is to explore the biographies of successful entrepreneurs.

Biographies of Entrepreneurs

Freddy Heineken

Freddy (Alfred) Heineken (1923–2002) is one of the most well known Dutch entrepreneurs of the twentieth century. He joined the Heineken brewery in Amsterdam during the Second World War, which was founded in 1863 by his grandfather. After the war, Freddy worked several years in the sales department of Heineken's American importer, where he developed his marketing skills. Some years later, Freddy decided to buy the majority of shares, creating the starting point of more than four decades of successful entrepreneurship. Under his leadership, which ended in 1989, Heineken grew to become one of the major breweries in the world and one of the most recognisable beer brands. In the Netherlands, Freddy Heineken was a celebrity entrepreneur, especially after his kidnapping and subsequent release in 1983.⁴

Shortly after his death, several facts about Heineken's activities outside his business have been revealed. Providing an insight into his personality and motivational drives. These revelations show him to be an influential power broker in Dutch politics, using his marketing skills to assist political friends in the liberal party (VVD). These aspects of his biography reveal him to be a strong Machiavellian type, which was most likely a personality trait that assisted him in growing the business. The Machiavellian personality type is generally considered to be pragmatic, emotionally distanced and prioritising the goals over the means.⁵

I don't sell beer, I sell good times.

Above all, the entrepreneurial essence of Freddy Heineken is that he was a gifted marketer. He is reputed to have said: “I don't sell beer, I sell good times”, illustrating that Heineken did not suffer from Marketing Myopia, as defined by Levitt.⁶

He understood the need to focus on the perceived benefits of his product, rather than marketing the product itself. This vision enabled him to position Heineken beer and differentiate it from other brands. Heineken used his marketing skills as a vehicle for his high need for achievement and drive to accumulate power. It is the combination of his strong personality and his marketing skills that made him the successful entrepreneur he became to be.

Michael Dell

Michael Dell was interested in technology from a young age and started to sell computers while still attending university. Selling computers was not something new in 1984, but Dell sold computers directly to consumers, bypassing traditional distribution channels.

This strategy allowed him to minimise distribution costs and thus generate above-average profits. He decided to quit university and corporatise his business, which has since then grown into one of the largest computer manufacturers in the world. His dissatisfaction with existing computer suppliers enabled him to recognise an opportunity in this market.⁷

The success of his business is also founded on an understanding of consumer needs. Dell regularly reads Usenet forums, chat rooms and Web sites to find out what customers think about his products: “I learn about things we are doing well. I learn when we screw up”.⁸

Michael is reluctant to provide information about his private life, making it difficult to tap into the psychology of this entrepreneur. Dell, who used to compete in triathlons, is described by Ralph Szygenda, CIO of General Motors, as a “violent competitor who doesn't like to lose”, illustrating Dell's competitive drive. According to a long time friend, Michael Dell is very determined and has “never deviated from his early business vision and almost enjoyed being doubted by others”, Illustrating his high need for achievement.

Michael Dell's entrepreneurial essence could be his insight in supply chain management and customer focus, revolutionising marketing logistics, not only in the computer industry but across industries, Dell has continued to innovate their supply chain, being one of the first businesses (in 1996) to utilise the Internet to market computers directly to consumers.

Peter Terret

Australian entrepreneur Peter Terret has a background in geodetic and topographic survey and developed an interest in Global Positioning Systems (GPS) in 1986. He is the Managing Director of RapidMap, a medium-sized company established in 1994, that specialises in geospatial equipment and services. RapidMap has since grown into an international provider delivering geospatial products and services.

Compared to the previously discussed entrepreneurial heavyweights Heineken and Dell, RapidMap is a modest business. Although RapidMap is a global player in the geospatial services market, compared to Heineken and Dell, it is a small business. The entrepreneurial principles that determine the destiny of all businesses are, however, independent of size.

Just like Dell, Terret has been able to recognise an imperfection in the market. While Dell developed a marketing strategy, based on his dissatisfaction with the computer market, Terret's insight was that he tapped into the need for some organisations, such as water corporations, to manage various physical assets over a large geographical area. Their ability to recognise opportunity is based on knowledge of the markets in which they operate and being able to think from the consumer's perspective. Parallel with Heineken, Terret based the success of his venture also on his marketing skills. By augmenting his product with the field-kit, RapidMap was able to differentiate itself from the competition, enabling Terret to capture the emerging market for mobile GPS solutions.

Le Khac Hiep

Le Khac Hiep is one of the many entrepreneurs that benefit from Vietnam's Doi Moi (restoration) policy and transition from a centrally controlled economy to a market economy. He is the chairman of VinCom Joint Stock Company, specialising in property development. VinCom has two major holdings: VinCom City Towers in Hanoi and the Sofitel VinPearl Resort and Spa in Hha Trang province.

Compared to Michael Dell and Terret, Hiep was not the primum movens of VinCom, but just like Heineken, hired by the company. This contrary to the common notion of the entrepreneur as the person starting a venture, which shows that the fortunes of an organisation can be turned by hiring people with an entrepreneurial mindset.

Le Khac Hiep states that one of the most important aspects of his achievement is a “hunger for success and aggressiveness and … the desire to do something meaningful for family friends and people”. Suzanne Young, who interviewed Hiep, portrays him as a person with “graciousness and modesty with a respectful disposition and hunger for achievement”. He shares a high desire for achievement with Heineken and Dell, but Hiep's definition of success is grounded in family, friends and people in general. In a Western cultural context, achievement is usually directed at personal success.

Discussion

Two common themes can be extracted from the case studies. All four described entrepreneurs show a high need for achievement (n-Ach) as defined by McClelland. The direction of the need to achieve is determined by culture, biography and personality.

Le Khac Hiep illustrates this link with culture. His need to achieve is more focused at the collective, rather than his personal achievement, illustrating the individualism-collectivism spectrum identified by Hofstede.⁹ South-East Asian cultures, such as Vietnam, are classified as collectivist cultures, while the Netherlands, Australia and the USA are classified as individualistic.

The Philosopher's Stone of entrepreneurialism

Characteristic of entrepreneurs described in business literature is that their need for achievement is expressed through commercial activities. A need for achievement can, however, also be internally directed, such as is the case with most artists, or the need to achieve can be aimed at changing the behaviour of others, such as is the case with, for example, political activists.

Although artists, activists and other people also exhibit entrepreneurial behaviour, the extant literature on entrepreneurs focuses on business ventures, with the aim the extract the Philosopher's Stone of entrepreneurialism so that others can duplicate their achievements. A high need to achieve is a sine qua non for any entrepreneur. It is a necessary condition that to be entrepreneurial one needs a high drive to succeed.

Findings from McClelland, who demonstrated a link between the need to achieve and economic growth, support this idea. It is, however, not a sufficient condition to become more entrepreneurial. Other personal attributes, i.e. abilities, attitudes, skills and knowledge are also important determinants of an entrepreneurial mindset.

The second aspect is the relationship between learnt skills and innate abilities of the entrepreneur. Michael Dell seems to have a natural ability to recognise opportunity and has developed his marketing skills in the process. Freddy Heineken also obtained his marketing skills on the job, while expatriated to the United States. The available data does not indicate whether Peter Terret and Le Khac Hiep have formal qualifications in management.

However, from this, it can not be concluded that entrepreneurs by definition have an innate ability to recognise marketing opportunities rather than being skilled in marketing techniques. First of all, the selected sample is too small to draw a general conclusion. Secondly, the available biographies are incomplete and could hide any formal education undertaken by these entrepreneurs.

Synthesis

The four entrepreneurs discussed in this overview illustrate that entrepreneurship is not an isolated Western cultural phenomenon. All four entrepreneurs show a high need for achievement and an (innate) ability to spot opportunities in the market. The culture-independent nature of entrepreneurial behaviour is confirmed by numerous ethnographic studies of, for example, the Ibos in Nigeria or the in Columbia. But, does the fact that entrepreneurship is a culture-independent phenomenon support the conclusion that there is an essence of entrepreneurship?

Entrepreneurial narratives offer a wide range of characteristics that entrepreneurs are considered to be imbued with. Cunningham and Lischeron identified several schools of thought in entrepreneurship studies.¹⁰ The Great Person school assumes that entrepreneurs have an innate intuition and ability to be entrepreneurs. The Psychological Characteristics school focuses on personality traits as enablers of entrepreneurial success.

The Classical School follows the Schumpeterian idea of the entrepreneur as an innovator. The more pragmatic Management School sees entrepreneurs as organisers of economic ventures, trained in the necessary technical skills.

Lastly, the Leadership school focuses on the ability of entrepreneurs to motivate people. All schools of thought have in common that they are essentialist, endeavouring to define those aspects of entrepreneurial behaviour that are characteristic to all entrepreneurs.

Cunningham and Lischeron argue that the current variety of schools of thought is because the academic study of entrepreneurs is a young field of endeavour and propose a pragmatic approach that uses insights from all schools of thought, depending on the stage of development the business is in. This call for paradigmatic pluralism reflects the complex nature of entrepreneurialism, but it also shows a deeper problem in entrepreneurial studies.

Defining dynamic phenomena such as entrepreneurship from an essentialist perspective is an impossible task because the complexity of social reality continuously presents new aspects that do not fit into a previously considered complete definition. No list of characteristics associated with entrepreneurship can ever be considered a sufficient condition for a particular person to become an entrepreneur.

Some characteristics, such as /n-/Achievement, can be considered a necessary condition for entrepreneurship to arise. Environmental obstacles and opportunity factors, such as community acceptance social shifts and resource availability, interact with personal attributes and it is the convergence of the two that enable successful business ventures. Given the unpredictable nature of environmental obstacles and opportunity factors, prospects of establishing a causal model of successful entrepreneurship are minimal.

The myth of the entrepreneur

Entrepreneurial narratives portray the entrepreneur as the hero of contemporary capitalism. This view, influenced by the early work of Schumpeter which emphasises the achievements of the individual, shows many parallels with the role of the hero in mythology. In mythology, a hero is a person from a humble background who needs to leave the group in search of adventure. The hero overcomes adversity and temporary failures but eventually succeeds in achieving his or her goals. Whelan and O'Gorman demonstrated that the typical entrepreneurial biography has many parallels with traditional hero mythology. The entrepreneur is mythological, not in the sense of myth as a fake story, but as an archetypal person in contemporary society.

Following the hero theme, the label 'entrepreneurial' is mostly associated with people who are successful, Excluding those that did not succeed.¹¹ This value-laden use of the category entrepreneurial directs all research effort into those that were successful.¹²

This approach is analogous with a palaeontologist who only studies species that have survived evolutionary pressures, ignoring those that are extinct. Using this method creates a sanitised and incomplete picture of the entrepreneurial phenomena.

French anthropologist Bruno Latour investigated the process of science creation and found that the results of scientific work are an idealised version of the actual process. This process is also active in entrepreneurial studies.

Entrepreneurial biographies are always incomplete and sanitised versions of reality. Entrepreneurs that are researched project their self-image on the information they provide about themselves which can lead to subconscious repression of the role of serendipity or even actively censoring of biographies. Researchers are forced to condense the ambiguity of entrepreneurial reality into the concepts described in research. One such condensed aspect of entrepreneurialism is the focus on individual achievements, mainly ignoring the influence that spouses, colleagues, suppliers and others have on the entrepreneur. This focus on the individual matches the mythological hero aspects of entrepreneurialism and is contrary to the emphasis on teamwork in contemporary business discourse.

In light of the paradigmatic confusion and problematic aspects of essentialism, some researchers have called for and experimented with alternative methods to research entrepreneurs.¹³ They propose to use interpretive methods to study entrepreneurs. The scholar of entrepreneurship should engage the available information and uncover gender, class and other aspects, looking from a prosopographical perspective that includes the network of people around the entrepreneur. This aspect will lead to a deep Verstehen of entrepreneurial behaviour instead of a catalogue of characteristics and models.

There is no essence of entrepreneurship

The search for the essence of entrepreneurial thinking and behaviour is guided by the desire to be able to duplicate the successes of the studied subjects. It is thought that assuming the essence of entrepreneurship can be found; this knowledge can help others to achieve the same.

The paradigmatic confusion in entrepreneurial studies illustrates, however, that there is no essence of entrepreneurship. The absence of essence is supported by current thinking in the philosophy of science. This idea does not imply that entrepreneurship cannot be successfully studied to assist others in becoming more entrepreneurial.

The most meaningful way to learn how to become more entrepreneurial is to examine the behaviour of entrepreneurs and read their biographies and interpretations of their behaviour. Universities should equip students of entrepreneurialism with skills to analyse and deconstruct narrative to gain a deep understanding of the entrepreneurs that came before them.

Notes

Wellington, D.C. and Zandvakili, S. (2006) 'The entrepreneurial myth, globalisation and American economic dominance'. International Journal of Social Economics 33(9): 615.

Whelan, G. and O'Gorman, C. (2007) 'The Schumpeterian and universal hero myth in stories of Irish entrepreneurs'. Irish Journal of Management 28(2): 79–107.

de Goey, F. (1996) Ondernemersgeschiedenis in Amerika, Nederland en België'. Entrepreneural history in the Netherlands, America and Belgium]. In Jaarboek voor economische, bedrijfs- en techniekgeschiedenis. NEHA; Pech, R., ed. (2009) Entrepreneurial courage, audacity, genius. Sydney: Pearson Education; Steyaert, C. (1998) 'A qualitative methodology for process studies of entrepreneurship'. International Studies of Management & Organisation 27(3): 13–33; Wellington and Zandvakili, 2006.

⁴

Heineken (2005) The history of Heineken; Smit, B. (1996) Heineken. Een Leven in de Brouwerij [A life in the brewery]. Nijmegen: SUN.

⁵

Robbins, S.P. and Judge, T.A. (2007) Organizational Behavior. 12th ed. New Jersey: Pearson Prentice Hall.

⁶

Levitt, T. (1960) 'Marketing Myopia'. Harvard Business Review 38(4): 45–56.

⁷

Burke, S. (2003) 'Michael Dell'. CRN 1075: 30;35.

⁸

Fishman, C. (2001) Facetime with Michael Dell. Fast Company (44).

⁹

Hofstede, G. (1993) Allemaal Andersdenkenden (Cultures and Organisations: Software of the Mind). Amsterdam: Contact.

¹⁰

Cunningham, J. B. and Lischeron, J. (1991) 'Defining entrepreneurship'. Journal of Small Business Management 29(1): 45–61.

¹¹

Legge, J. and Hindle, K. (1997) Entrepreneurship: How Innovators Create the Future. South Melbourne: MacMillan.

¹²

Seymour, R.G. (2006) 'Hermeneutic phenomenology and international entrepreneurship research'. Journal of International Entrepreneurship 4: 137–155.

¹³

Jennings, P.L., Perren, L. and Carter, S. (2005) 'Alternative perspectives on entrepreneurship research'. Entrepreneurship theory and practice 29(2): 145–152.; Seymour, 2006; Steyaert, 1998.

Self-Knowledge for Managers through Personality Testing

Peter Prevos — Fri, 30 May 2008 00:00:00 +0000

One's own is well hidden for one's own; and of all treasure troves, one's own is the last to be excavated ….

Friedrich Nietzsche, Alzo sprach Zarathustra

The importance of self-knowledge for managers and everybody else has been acknowledged through the ages and across cultures. A visitor to the temple of Apollo at Delphi in ancient Greece was commanded to “Know Thyself”, and Chinese philosopher Lao wrote that “self-knowledge is enlightenment”.

Thousands of years later, the search for the real self is still central to the human experience. Contemporary management thinkers also recognise the importance of self-knowledge and have linked it to improved management performance and subsequently the success of the organisation.¹ Self-knowledge is different from knowledge of the objective world.²

It is, by definition, subjective and is thus not easily obtained, as illustrated by the epigraph. Sigmund Freud and Carl Rogers, two of the most influential psychotherapists of the last century, theorised that people have a hidden personality of which they are not aware. It is this unknown, subconscious, nature of personality that creates epistemological hurdles and makes self-knowledge a hidden treasure.

Psychometric Testing

The holy grail of human resource management is to find the perfect staff member. Countless books are devoted to the recruitment process and predicting performance based on interviews, résumés, reference checks and psychometric testing. At Lucid Manager we have written several articles about the machinations of recruitment.

The main problem with this approach is that the balance of power is presumed to be on the recruiter's side. This unbalanced relationship forces the applicant to be like a dancing monkey, performing the tricks that he or she believes will please the recruiters. The applicant is often left to second-guessing the 'right' answer to the questions. And although we are often told that there are no right or wrong answers, this is of course not correct. Some answers get you the job and the ones that don't. The recruitment process is a case of double deception, both the recruiter and the applicant are not willing to have a genuine conversation because they are limited by the script of the traditional job interview.

Many different types of psychometric tests have been developed to determine a subject's personality or other aspects of the self. It seems that self-knowledge for managers is only a few tickboxes away. These tests are used in clinical settings and research but are also widely used for recruitment and leadership development.³

For my MBA studies, I was asked to undertake a battery of personality and motivation tests in an attempt to improve my self-knowledge. The central question to be answered is whether this myriad of numbers and classifications describe me as a person and whether they can provide deeper self-knowledge to enable me to be a better manager.

Numerous studies have shown that psychometric tests can be used to make predictions about the behaviour of individuals and job performance. There are, however, many situational variables, such as organisational culture, which influence behaviour. Research indicates that personality plays the most significant role in situations where there are no social clues on how to behave.⁴

Some of the often used methodologies are scientifically problematic. There is little empirical evidence to confirm the validity of the Myers-Briggs Type Indicator. Also for Theory X/Y and ERG Theory, there is little or no evidence to verify the validity of their assumptions.⁵ A problematic aspect of self-administered psychometric testing is a high level of inherent confirmation bias, also known as the `Forer Effect'.⁶

Am I very conscientious, or do I perceive myself to be conscientious? Am I an extroverted person, or is it my high level of energy which subjugates any innate introverted personality? Do the results of these tests provide a picture of my inner self, or are they a reflection of my perceived self?

The test results do not reveal any information beyond what has been entered by me, because the results are only a linguistic rearrangement of the answers. This idea is confirmed by recent research that showed that most people could guess the outcome of personality tests without actually undertaking them.⁷

Self-Knowledge for Managers

Comprehensive self-knowledge can thus not be obtained by completing surveys because they can only reveal the perceived self and are not capable of unearthing the inner (subconscious) self. Psychometric tests are suitable only as a vehicle for introspection, providing an entry point for reflecting on one's self. This introspection can, however, not occur without life experience to reflect on.

Obtaining self-knowledge, considered essential for leadership development, requires something more profound and more substantial, as alluded to by Nietzsche in the epigraph to this blog entry. As situational variables predominately control our behaviour, the only way to obtain self-knowledge is life-experience.

Only by being exposed to a multitude of situations and challenges can we know what our personality is. As we gain life experience, our inner and perceived selves slowly converge. Maturity is the situation where the inner self and the perceived self are almost identical, and self-knowledge becomes apparent. Even the most carefully designed personality test can not leapfrog the knowledge obtained through life experience. Carl Gustav Jung, who inspired the development of the MBTI recognised this when he wrote:

Anyone who wants to know the human psyche … would be better advised to abandon exact science … and wander with human heart through the world.

This foray into psychometric testing leaves me to conclude that no psychometric test can ever replace the fullness of life experience to obtain true self-knowledge. Experiences such as exposing oneself to challenging situations, occasionally exploring the boundaries of morality, experiencing different cultures or going through emotional turmoil are the only meaningful ways to gain self-knowledge.

Free Personality Test

Are you still interested in taking a personality test after reading this essay?

Please take place on our virtual divan and answer the twenty-two questions below to find out what your Forer Workstyle Inventory is. Remember, there are no wrong answers, we don't collect your personal information, so what are you waiting for?

Click on the icon to go to the test.

Notes

Bourner, T. (1996). Personal development to improve management. Management Development Review, 9(6), 4; McMahon, T. J. (1992). Teaching management to MBA students: The issue of pedagogy. Journal of Managerial Psychology, 7/(1), 21–25; Smith, B. (1993). `Building Managers from the Inside Out' - Developing managers through competency-based action learning. Journal of Management Development, 12(1), 43–48.

Gertler, B. (2003) Self-knowledge. In E. N. Zalta (Ed.), The Stanford Encyclopedia of Philosophy.

Michael, J. (2003). Using the Myers-Briggs type indicator as a tool for leadership development? Apply with caution. Journal of Leadership and Organizational Studies 10(1), 68–81.

⁴

Gray, P. (2002). Psychology (4th ed.). New York: Worth Publishers; Robbins, S. P., & Judge, T. A. (2007). Organizational behaviour (12th ed.). New Jersey: Pearson Prentice Hall.

⁵

Lorr M. (1991) An empirical evaluation of the MBTI typology. Personality and Individual Differences, 11(12), 1141–1145.

⁶

Forer, B. R. (1949). The fallacy of personal validation: A classroom demonstration of gullibility. Journal of Abnormal Psychology, 44 (1), 118–123.

⁷

Furnham, A., & Dissou, G. (2007). The relationship between self-estimated and test-derived scores of personality and intelligence. Journal of Individual Differences 28 (1), 37–44.

The Capitalist Philosophers: Frederick Taylor, Mayo and Deming

Peter Prevos — Fri, 02 May 2008 00:00:00 +0000

Management thinkers played an influential role in shaping the twentieth century, but they remained in the shadow of those who Time Magazine considers the most prominent. The influence of visionaries such as Frederick Taylor, Elton Mayo and W. Edwards Deming is, however, immense as their ideas were instrumental in creating the prosperity of the late twentieth century. Have these management thinkers found the philosopher's stone of management or did they spawn management fundamentalism?

Frederick Taylor

Frederick Taylor (1856–1915) was born to a wealthy Quaker family in Philadelphia and was raised with traditional Protestant values, which espouse hard work and discipline. Childhood friends recall him analysing everything, even a game of croquet or rounders. His passion for perfection and sport was rewarded when in 1881 Taylor and his brother in law became the first men's double US tennis champions. Although passing the entry exam for Harvard University, Taylor did not attend the alma mater of his family. Instead, he became an apprentice pattern maker and machinist in 1873. Five years later, he was employed at the Midvale Steel Company as a labourer and worked his way up to chief engineer in six years. While working at Midvale, Taylor obtained a degree in Mechanical Engineering through part-time study at the Stevens Institute of Technology.¹

Frederick Taylor (1856–1915).

Taylor's thinking was emblematic of the rationalist and pragmatic spirit of the late nineteenth century. It was a time when the successes of the exact sciences led to the belief that this type of thinking also applies to the social sciences. The Hobbesian view of society as a machine and the fact that psychology was only an embryonic science, profoundly influenced Taylor's thinking. Society was thrown into disarray because of the rapid transition from small-scale traditional social systems to the sprawling cities of the industrial age. This development was combined with an increase in individualism, following the call of enlightenment philosophers such as Immanuel Kant for people to think for themselves.

It was also a time of rapid vertical economic growth for the United States, spearheaded by the construction of an extensive railway network, which enabled manufacturers to develop high-density distribution networks. Economic activity focused on increasing production because of the intense hunger for goods, which required the improvement of manufacturing techniques to keep up with demand. President Roosevelt remarked in this context that: "The conservation of our national resources is only preliminary to the larger question of national efficiency."

It was these words that Taylor used to open his most influential 1911 monograph, The Principles of Scientific Management. Taylor developed his management theory when encountering the practice of “systematic soldiering”, which is the intentional limitation of productivity by labourers, at the Midvale Steel Works. Taylor's protestant ethic emphasising diligent labour as a means to personal salvation and upper-class upbringing prevented him from accepting this ingrained practice.

Taylor's motives were outwardly humanistic as he aimed to "secure the maximum prosperity for the employer, coupled with the maximum prosperity for each employee. Taylor's focus on increasing productivity was based on the idea that “maximum prosperity can exist only as the result of maximum productivity”.²

Contemporary marketing literature suggests a variety of means to increase prosperity, such as communications and pricing strategies. These sophisticated marketing strategies were, however, not generally practised during Taylor's time and so his only means to improve prosperity was to increase efficiency.

Taylor observed that factory workers had their trade handed down through word of mouth and he lamented that this “rule of thumb” knowledge, was “not in possession of the management”. Taylor's strategy was therefore principally aimed at transferring power from the worker to management and develop a science to replace traditional knowledge. Although Taylor mentions “an almost equal division of the responsibility between management and the workmen [sic]”, his idea of shared responsibility was to move all initiative and control over work methods from labourers to management. His attitude towards labourers is reminiscent of Kant's Vormünder (guardians), as he does not want them to think for themselves. Taylor's ideal factory is like a termite colony; using rigid work patterns which convert employees into mindless workers.³

Taylor and his colleagues ran a series of experiments with hauling pig iron. His description of this activity shows disdain, rooted in his sense of class distinctions, for the average worker: “… it would be possible to train an intelligent gorilla to become a more efficient pig-iron handler than any man can be”, thereby justifying his strict division of labour. Using an early application of ergonomics, Taylor determined that pig iron hauliers should be able to move 48 metric tonnes per day (1,144 pigs of iron), instead of the usual 13 tonnes (304 pigs). The workers were offered a salary increase from $1.15 per day to $1.85. To the labourers, a sixty percent wage increase would have sounded fantastic, but they had to increase productivity by 376%! Taylor justified this by arguing that customers should enjoy part of the productivity gains, but he also thought that labourers would not be able to handle earning too much money and that they would become “extravagant and dissipated”.

Taylor had, however, great difficulty implementing his theories and ccasionally resorted to lowering wages to "motivate" workers and using a form of Social Darwinism to weed out all those who were not able to achieve the high production standards. Taylor's experiments were not received favourably; workers threw spanners in the works and Taylorism was also subject to a congressional investigation. In spite of this resistance, Taylorism remained popular for several decades.

Elton Mayo

Australian born psychologist Elton Mayo (1880–1949) was asked in 1928 to help interpret the data obtained from the Hawthorne experiments. Mayo was a proponent of the psychology of Sigmund Freud and challenged the idea of people as purely rational beings. This in contrast with Taylor, who relied upon mathematical reasoning to improve management practices and analysed people as if they were machines.⁴

The experiments conducted at the Hawthorne plant of Western Electric were initially performed to investigate the relationships between workplace conditions and productivity. One hypothesis productivity maximises at a particular light intensity had to be rejected, as productivity increased regardless of light intensity. The researchers concluded that uncontrolled variables had influenced productivity and eventually concluded that the psychology of the total situation was an important factor.

Elton Mayo.

It could be argued that Taylor foretold the outcomes of Hawthorne. When working at the Simmonds Rolling Machine Company, he noted that productivity increased when: “each [ball bearing checking] girl was made to feel that she was the object of special care and interest”. However, Taylor has never conducted any detailed studies to investigate this phenomenon.

One of the variables Mayo and his colleagues studied at Hawthorne was the influence of rest periods on productivity. This was, however, not a new idea as Taylor had introduced regular rest periods for the ball bearing checking girls and noted that productivity increased. Taylor's perspective was, however, not psychological but ergonomic. He was interested in improving the efficiency of the human machine, without regarding the mind.

Mayo also encountered the practice of soldiering at Hawthorne. Researchers found that a group of workers paid on a piece-rate arrangement had established their output norm, based on what they thought would be fair. In contrast with Taylor, Mayo did not seek to eradicate the informal organisation. Instead, he tried to find ways to create an equilibrium between the official and informal organisation.

W. Edwards Deming

The founder of Total Quality Management, W. Edwards Deming (1900–1993) was imbued with Taylor's systematic approach, but with a more enlightened understanding of human psychology. To improve the pig-iron loading, Deming would have advised Taylor to motivate workers to provide suggestions to increase efficiency, rather than relying on stopwatch and slide-rule yielding engineers. Taylor's hierarchical view of the world and his belief in a strict division of responsibility impeded him from recognising workers as part of the solution. Taylor's writings are, however, contradictory, because he does seem to believe that “every encouragement … should be given [to the worker] to suggest improvements”, contradicting with his ideas about the division of labour cited above.

There are many points of difference and similarities between Deming and Taylor. They both used a method based on science and placed high value on facts. They also both saw that management and employees have similar interests and both acknowledged the importance of customers. Their points of difference are due to their place on the timeline of management thought. Deming had the advantage of the psychological insights of management researchers such as Mayo, while Taylor was limited by his belief in the exact sciences and the limited availability of psychological knowledge.⁵

The currently widely implemented Six Sigma business improvement methodology echoes the philosophy of Scientific Management. The Six Sigma method is often summarised with DMAIC: Design, Measure, Analyse, Improve and Control. These steps are closely aligned to Taylor's principles of scientific management, and Six Sigma is a form of Taylorism, enhanced with customer focus advocated by Deming and an understanding of psychology. Remnants of Taylorism can also be found in call centres. Operators are closely monitored, and their work is modelled using mathematical formulae, such as the Erlang-C equation. There is also a strict division of labour as in most call centres; operators are provided with detailed scripts, eliminating human spontaneity which is considered prone to error, from the interaction between customers and operators. The result of this is that call centres suffer from enormous rates of staff dissatisfaction and turnover and that some are calling for a more psychological approach.

Conclusion

The end of the nineteenth century was a pivotal period in the history of Western culture. Fast developments since the industrial revolution had caused social turmoil, but also increased a sense of individualism, flowing on from the ideals of the enlightenment, proclaimed by Kant and others. Taylor, however, clung to the old values of the Ancien Régime and implemented a strict division of labour.

Taylor can be called a fundamentalist as he had an unshakable belief that his method was the only right way. Historical forces were, however, much stronger than Taylor. Subsequent management theories proclaimed a more subtle psychological approach to motivate staff, acknowledging the employees are free-thinking individuals. Although Taylor recognised that “some special incentive” was required to motivate labourers, he failed to seek ways to internally motivate them because he limited himself to the methods of the exact sciences. It is for these reasons that Taylor's work has only very limited applicability in a contemporary management setting.

Notes

Gabor, Andrea (2000) The capitalist philosophers. New York: Three Rovers Press.

Taylor, Frederick W. (19110) The principles of scientific management.

Pech, Richard J. (2001) 'Termites, group behaviour, and the loss of innovation: conformity rules!' Journal of Managerial Psychology 16(7): 559–574.

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Wren, David A. (2005) The history of management thought. 5th ed. Wiley.

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Knouse, Stephen B., Carson, Paula Phillips and Carson, Kerry D. (1993) 'W. Edward Deming and Frederick Winslow Taylor: A Comparison of two leaders who shaped the world's view of management'. International Journal of Public Administration 16(10): 1621–1658.