"Where the cause is not known, we will fail to produce the effect", wrote in 1620 Francis Bacon, the father of modern experimental sciences. His diagnosis holds for today's corporations. The effect sought for is performance by leveraging people's intelligence and energy at work. But what about the cause? Schematically, management tradition suggests two types of answers: one according to the mechanical tradition inherited from Scientific Management, one based on psychology in the wake of the Human Relations movement.
Following the mechanical approach, the main cause is proper structure and procedures, irrespective of the people to whom they apply. This stems from Taylor's idea that the more an organization can work independently of the people who constitute it, the more scientific, and therefore efficient, it is. The good manager is the one able to design the "one best" set of structures and procedures, and performance will mechanically flow from it. If the employee with the right skills profile is put in the right box in the org chart, with the right task instructions and incentives, then the "right man in the right place" is made accountable, and thus performance is under control. It may sound cold and impersonal, but such are the hard mechanics of performance.
Contrarily to Taylor who discarded anything relating to feelings, the Human Relations school centers on this dimension. According to this front, people react to affective stimuli and good internal relationships provide the key to good results. The good leader is the one who inspires the right feelings among subordinates, notably thanks to his/her "leadership style". It may sound soft and fuzzy, but such are the emotional sources of performance
Change efforts often rely on one of these traditions, and sometimes attempt to combine them to leverage the pros and mitigate the cons. A typical cocktail in this respect is restructuring and engineering efforts on the one hand, with people initiatives on the other. Experience suggests that both traditions entail serious traps for today's corporation. Combining them multiplies the risks. Of course, structures and procedures are required to guide the organization towards its strategic objectives. However, the effect of structures and procedures does not simply depend upon their content. The effect also depends upon the way in which the human system adapts and adjusts to these: in short, the behavior they elicit. It is also certainly true that the quality of relationships and mutual feelings between organization members is an important ingredient of group performance. However, it is more a matter of limits than of directions. Overly good relationships among some people can develop at the expense of the mission and of the organization as a whole.
The success of a strategy requires navigating between the traps of both the mechanical and psychological human factor approaches. The solution is not to find a balance between these views. What is needed is an analytical perspective capable of uncovering the real drivers of organizational phenomena and behaviors so as to modify them in full knowledge of the resulting effect on performance.
Traps of the mechanical approach: not too much control, but not enough
In order to become more customer-oriented, a European industrial group completely re-engineered its structure and procedures. The divisional organization was decentralized into small regional units equipped with all the technical, commercial and logistical competencies needed to satisfy the most specific of customer desires. Technical sales staff was given all the autonomy required to deal with the most demanding customers, those requiring customized and innovative services. Decision circuits were simplified and hierarchies were "delayered" to improve responsiveness. The whole reengineering was backed with major internal communication campaigns on customer value and customer satisfaction, highlighting the necessity of moving from just selling technical products to providing customers with full solutions. As a result, customers came in droves.
Faced with the imperative of never saying "No" to customers, the technical sales staff found themselves under increasing time pressure. In order to cope, each sales person autonomously developed a range of automatic responses to each situation. Combining with each other, these behaviors eventually formed routines, leading to a de-facto standardization of services. These came to reflect less and less the specific requirements of customers – particularly those requiring innovative technical solutions. The customers, in their turn, adjusted their behavior: they retained the company for their standard requirements and turned to the competition for value added services.
Structures and procedures that intended to foster customer-oriented service, combined with sincere individual commitment, ended-up having the opposite effect. Why? Because some key variables of the human system lie between the company's targets and the change levers used to achieve these targets. Let's describe this in a simple model of individual goals, resources and constraints.
The new organization based on "The customer is king" motto introduced a new goal for each of the technical sales people: never be seen as the source of a lost deal with customers. With, as a corollary, the time constraints imposed by serving a growing number of customers. However, at the same time, the delayered structure and simplified procedures provided each player with a new resource: autonomy in ways of organizing one's work. If one wanted to remain efficient in the new game, the only rational strategy for each player was then to use this resource to develop individual pre-programmed routines. Cooperation between players worked only around common routines, collectively reinforcing standardization of the company's services.
The problem with the mechanical approach is not that it places too much emphasis on control at the expense of freedom and the warmth possibly needed in human interactions. It is that its control is elusive. The effect of new structures and procedures depends on their impact on the goals, resources and constraints that shape the individual and collective behaviors at the root of performance. Failure to understand these parameters prevents a company from sufficiently controlling the consequences of its decisions.
Traps of the psychological and Human Relations approach: not too much attention to the human factor, but not enough
Opposite to the mechanical bias, the example of a European service group demonstrates the risk of focusing on the workforce's supposed motivations. This group had identified a new service and distribution concept that would strongly differentiate its products in the market place. This concept had implications on the organization: in order to deploy the new concept effectively, administration needed to be re-organized on a customer-segment basis rather than on a geographic area basis. However, this structure would have physically distanced the administrative staff from customers. Administrative departments accounted for a significant portion of the company's workforce. As a result, the whole project was stopped because management believed that "the administrative staff felt that being located close to customers was a form of recognition, given their persistent inferiority complex towards commercial people". Management also strongly believed that recognition created satisfaction and that satisfaction created performance. The status quo remained until an in-depth analysis of the organization revealed a totally different story.
Firstly, the analysis uncovered very tense relationships between administrative staff and their hierarchy. The administrative hierarchy had few levers to manage the workforce, except control and detection of mistakes in the agents' administration of customer accounts. Every time an agent made a mistake, hierarchy used it to justify closer control of the agent's activity. Secondly, the analysis uncovered underlying networks of cooperation between the administrative staff and the closest sales agents dealing with customers. The administrative people could arrange with sales staff to cover and catch their errors, thereby avoiding the unwanted intervention of their hierarchy. In exchange, sales staff would get "free services" from the administrative colleagues they knew, e.g. response to specific customer inquiries that should be internally charged for according to accounting procedures.
In reality, if location was an issue, it was not so much for the sake of "feeling close to customers", but for tangible contacts with the sales people. Given their goal (maintain autonomy towards hierarchy), their constraints (closer control of hierarchy in case of errors) and their resources (sales staff's help in covering and rectifying errors), the administrative agents were placed in a game where the rational strategy was to maintain close personal contacts with the sales people. What was at stake for the administrative workforce was not recognition to supposedly compensate a hypothetical "inferiority complex", but pragmatic preservation of a safety net. Of course, this had a cost (low quality and efficiency) and real performance was much below accounting figures. The problem for the company was not "How can we preserve emotional recognition to preserve performance", but "How can we reshape the game so that the safety net loses relevance for administrative players". This meant redesigning the role of hierarchy and the error-generating work processes. By dropping the abstract reasoning about assumed psychological needs of administrative departments to seriously tackle these issues, it was possible to implement the new strategy.
It was not the administrative agents who had blocked the way to successful change – it was the faulty reasoning that had been applied to understand them.
The problem with the psychological approach that developed in the wake of Human Relations is not over-emphasis on the human factor. It is that the lenses it uses – with all their assumptions about pre-existing needs and motivations – make it impossible to understand the real human system at work.
Reconciling strategic and human issues
Strategy requires an integrated understanding of the internal and external facets of the field of operations. This is one of the clear benefits of organizational sociology when it incorporates the most advanced results from systems analysis, game theory and micro-economics.
To understand an organization, a rigorous approach must be based on what people actually do, rather than on what they are supposed to do according to the role procedures ascribe to them, or according to the psychological needs we expect them to feel. Then, actions must be analyzed in the light of the context individuals are confronted with, given the resources they can use and the constraints they must overcome. However, the behavior of a human system and the collective capabilities of an organization – in mobilizing around the right priorities, mastering the right technologies, understanding its markets, etc. – is not the simple addition of individual efforts and capabilities. Therefore, analysis must also uncover the system dynamics resulting from the often-unexpected combination of individual behaviors.
Some dynamics can be positive for the company, resulting in economic performance, organizational learning, innovation and cohesion. These must be maintained and developed. Other underlying dynamics may be negative from the standpoint of competitive advantage and performance. Neutralizing those will save from endlessly dealing with symptoms rather than causes. A structured and analytic approach of the whole continuum – from market challenges to the company's value proposition, then to its human system at work – can identify and shape the causal factors needed to create competitive advantage.
Strategies of movement (internationalization, mergers and strategic partnerships, redefinition of the strategic boundaries of businesses, etc.) and adaptive strategies are increasingly critical. The resulting complexity requires an even more rigorous and innovative approach in setting up an organization that will best mobilize people's intelligence. A rigorous and structured approach of the human reality of a company does not limit its strategic ambition, it energizes it.
Copyright Yves Morieux 2011