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The theme of the 2015 Drucker Forum that ended in Vienna two weeks ago was “Claiming Our Humanity: Managing in a Digital Age”. Nearly 500 management academics, business people and management consultants from all over the world attended the two-day conference in Vienna.
The preliminary events began with a CEO Roundtable on the afternoon of Wednesday November 6. The opening ‘provocation’ was supplied by Tom Davenport and Julia Kirby’s June 2015 Harvard Business Review article “Beyond Automation”. In it they address the threat that artificial intelligence in the form of smart machines is encroaching on knowledge work to such an extent that it will lead to widespread unemployment. In the past machines took over work that was dangerous, dirty and dull. Now they seem to be taking over decision-making roles. Does it mean automation and the replacement of humans or is there scope for augmentation of human cognitive powers by machines? Should we be worried? The Davenport/Kirby shorthand answer, “Yes-No-Yes”, captured the both uncertainty of our questions about the future and the equivocality of the ‘answers’.
The VW Debacle: How Large Successful Organizations and Institutions Can Become “Bad Barrels” And What To Do About It
The outlines of Volkswagen’s comprehensive program to defeat national auto emissions laws are becoming clearer. According to the New York Times the company began installing software designed to cheat on emissions test in 2008, when they realized that their new E89 diesel engine could not meet the pollution standards in the US. Three (now four) top managers who were involved in the development of that engine have been suspended. The NYT article goes onto mention that that it was also in 2008 that the CEO of VW, Martin Winterkorn, had vowed to triple the company’s sales in the US within ten years. When he became CEO in 2007 he had a reputation for being a detail-oriented manager who hated getting bad news and dealt harshly with subordinates who failed to meet their targets. All this in a company known generally for its high-pressure management methods…
The debacle at VW is just another instance of the alarming propensity for large, apparently successful organizations to spawn unethical and even criminal activity for long periods of time and then to cover it up. When they are eventually revealed, these activities can result in existential threats to the organizations involved. The recent General Motors cover-up of its faulty ignition locks is an obvious parallel but Johnson & Johnson (J&J) is another example of a corporation that has encountered more and more ethical issues in recent times. Only a few weeks ago NYT columnist Nicholas Kristof reported on J&J’s aggressive attempts to promote off-label uses of its mega-hit drug Risperdal. The company eventually pleaded guilty to misbranding the drug and was fined over $2.2 Billion. No individual executives were charged with any wrongdoing. As Kristof points out, Alex Gorsky, the executive responsible for the marketing of the drug in these ways has now been elevated to the job of CEO! This suggests that the internal reward systems for pursuing results at all costs can be very real. This incident occurred shortly after J&J’s tardy recall of faulty hip joints as well as the discovery of multiple quality problems in J&J’s factories. J&J used to be known as the “Credo Company” that always put its patients first. How it has drifted!
For Peter Drucker history was an essential resource. Commentators have described the scope of his writings as “Braudelian” in honor of the work of historian, Fernand Braudel, the leader of the French Annales school of history, renowned for its broad, integrative approach. Drucker’s illustrations of organization and change included both the British Raj in India and the Meiji Restoration in Japan. A trio of little-known German thinkers, Willem von Humboldt (1767-1835), Joseph von Radowitz (1797-1853) and Friedrich Julius Stahl (1802-1861) informed his understanding of what it took to preserve the traditions of the past while facilitating rapid change.
Recently Adrian Wooldridge, the Schumpeter columnist for The Economist, reviewed the introduction by BetterWorks, a Silicon Valley startup, of “goal science” to the workplace. The New York Times reviewed the same company on Monday. The company “makes office software that blends aspects of social media, fitness tracking and video games into a system meant to keep employees more engaged with their work and one another. With the software, employees and their bosses set long- and short-term goals, and, over time, log their progress on a digital dashboard that everyone in their company can see and comment on.” The idea is to make the Management by Objectives (MBO) process more frequent and more “data-driven”. One wonders whether this is the real challenge with MBO. More often the problem is with the philosophy behind the technique, rather than with the technique itself.
MBO; an Elusive Philosophy
Management by Objectives (MBO) is a deceptively simple technique that is very difficult to employ effectively. The philosophical framework within which it is used is critical. Given Peter Drucker’s background, upbringing and his emphasis on self-discipline, it seems likely that his original intent was that MBO should be the civilian equivalent of the system of mission command or auftragstaktik, developed by the Prussian army in the 19th Century. The essence of this system was that no commander should issue an order that went beyond what he could know of the actual situation. Rather he should declare an intent that created a space within which his subordinates would have the freedom to act as they saw fit. They, in their turn, would declare their slightly narrower intents and so on, down the line. This cascading set of “action spaces” preserved autonomy and creativity at every level of the organization. Helmuth von Motlke the Elder (1800-1891), who perfected the system, made no distinction between strategy development and execution – strategy could emerge bottom-up through “directed opportunism”, just as readily as it could be formulated top-down. Mission command is still the gold standard for armed forces all over the world. But, outside of small Special Forces units, it has proved extremely difficult to implement – the words are easy, but behavior and the selection and training required to produce and sustain it are difficult.
In America the management philosophy required to use MBO successfully is rarely found. The prevailing perspective is engineering, instrumental and individualistic. Strategy formulation is separated from implementation and the notion of emergent strategy is diminished if not denied. Often the assumption is that cause-and-effect in a complex organization is well understood when, in reality, it is hardly understood at all. The emphasis is on performance and efficiency at the expense of creativity and learning. “Clear objectives” are seen as the CEO’s input to the process rather than as an outcome of a process of discovery. “Clear” is usually taken to mean SMART: specific, measurable, actionable, realistic and time-sensitive but too often the default is to financial measures. These are always desirable outcomes that, of course, leave the assumptions about cause-and-effect unexamined. In addition, clarity is often mistaken for detail, which encourages senior management to get far more specific than they should. Metrics become straightjackets – targets that define performance and are linked via incentives to compensation. This raises the stakes in the organization, leading to all kinds of dysfunctional outcomes. Instead of promoting cooperation it can easily stoke competition. The worst outcome is that it turns what should be means into ends-in-themselves. This makes the true ends of the enterprise undiscussable. Purpose and meaning dwindle and the whole MBO process becomes manipulative. Thus MBO morphs into authoritarian micromanagement, a tool of oppression. The Prussian army called it befehlstaktik – detailed command. It is the bane of large bureaucracies everywhere, disengaging people and crushing creativity and innovation. It is unclear how mechanizing the MBO process can change this. Conducting a dysfunctional goal-setting process more often seems to be a recipe for disaster.
The economist Joseph Schumpeter famously argued that the central feature of capitalism was “creative destruction”. Last month the destructive aspects were on full view in the wreck of the 100-year-old magazine The New Republic (TNR). In the first week of December 2014, a month after the celebration of its centenary, almost the entire senior staff resigned in response to the forced departure of the magazine’s respected editor, Frank Foer. In one day the publication lost two-thirds of the names on its editorial masthead.
The New Republic was founded in November 1914 by leaders of the American Progressive Movement and backed financially by a Whitney heiress and her wealthy husband. Over the years, under its masthead symbol of a square-rigged frigate, it has attempted to tack and jibe between the ancient menaces of Scylla and Charybdis. That is, it tried to find a way between “left” and the “right” in many, perhaps most of the instances of that polarity: tradition and progress, liberal and conservative, rural and urban, agrarian and industrial, arts and sciences, community and individual and so on and on. The result was an often scintillating publication, but with a limited readership. TNR lived perpetually on the edge of financial catastrophe, which was staved off only by philanthropic support. Even then, there were regularly crises, when the magazine’s very survival was threatened.
Internally the TNR culture was what a former editor, Andrew Sullivan describes as a “cauldron of first-class minds and third-class temperaments, engaged in something roughly called journalism not for money or pageviews, but because they believed in something, and were prepared to engage every ounce of their brainpower to fight over it. Editorial meetings were tempestuous, ribald, hilarious, and unmissable .…We experimented every week – and took risks others balked at.” Not surprisingly this atmosphere proved to be a great incubator of writing talent and many of America’s finest journalists have spent some time at TNR. This must account in part for the shock and anger expressed in the media at its wrecking.