Friday, 16 May 2008

What management bandwagons bring

Management by Objectives, Zero-based Budgeting, T Groups, Theory Y, Theory Z, Diversification, Matrix Organisation, Participative Management, Management by Walking Around, Job Enlargement, Quality Circles, Downsizing, Re-engineering, Total Quality Management, Teams, Six-sigma, ISO9000 and Empowerment.

Surely you must have been subjected to some of those? Most of them have fallen out of favour again. We call them Management Fads. But do they do anything? Well… the answer is yes, but perhaps not what you’d expect them to do, or least what they are intended to do.

Professors Barry Staw and Lisa Epstein, both from University of California in Berkeley, through careful statistical analysis, examined some of the consequences of organizations’ adopting such techniques on a variety of factors. They collected data on exactly 100 Fortune 500 companies, including their adoption of quality techniques (such as Total Quality Management), teams and empowerment, the company’s reputation (through Fortune’s “Most Admired Companies” survey), their financial performance and… of course… CEO’s compensation. This is what they found:

Firms adopting popular management techniques (such as TQM, etc.) did subsequently not perform any better than firms not adopting them. Actually, if Barry and Lisa did find an effect of any of the techniques, it was negative. Usually though the stuff didn’t do a thing at all.

Then they examined the effect of adopting such techniques on the companies’ reputation, measured through their position and ascent on Fortune Magazine’s “Most Admired Companies” list. The analysis revealed clearly that adoption of the popular management techniques significantly increased firms’ position on the “Most Admired Companies” list, irrespective of their performance… To be precise, those firms were rated as being more innovative and as having higher quality management. Apparently, the stuff doesn’t have to work, but it does enhance your reputation in the outside world.

Finally the piece-de-resistance: The influence of the adoption of popular management techniques on a CEO’s compensation package (salary and bonus).... Yep, you guessed it, and the effects were very strong: If a CEO’s firm adopted one of the popular management techniques, his compensation went up.

So what does this tell us? Well, first of all of course that many of these management fads simply don’t work. The organisation doesn’t perform better as a result of adopting any of them. Yet, apparently, it does make you look innovative and legitimate in the eyes of others. This includes fellow executives, who subsequently vote for you as being “much admired” but – hurrah! – also in the eyes of your Board; they enthusiastically pad you on the back for the great achievement and, with grace and thanks, increase the size of your compensation package.

3 comments:

Maayke said...

Did they also look at the way these firms 'implemented' these 'management techniques'. Probably since it is new stuff to them they do not really change anything - hence no real change in performance. Real improvement or change never happens when you ONLY try out a new technique - like the weight loss programs you have: in the end it is not the weight loss program, but the WAY an individual implements a range of changes in behavior and belief systems (attitude) that makes an improvement (what ever that may be) happen....

Freek said...

Unfortunately they did not examine whether the firms really implemented the techniques, whether they did it correctly, etc. I guess that would already be quite difficult to do for even one firm, let alone a 100, let alone in retrospect!

So, yes, I guess you're right that firm performance would not go up if, for instance, they don't implement it correctly.

However, this still leaves the fact that it DID increase the firm's position on the "most admired companies" list and did increase the CEO's remuneration...

So, even if the average firm did not really "change anything", as you say, but only "tried them out", I would still propose that it is quite peculiar that merely "fooling around with the technique" (without really implementing it and without it leading to any performance improvement) leads to such happy feats!

Development said...

But the incentive for the CEO (and short term shareholders) is NOT to implement these fads fully. The incentive is to move to the next fad, as the effect on the reputation of sticking for 6 years with six sigma on the reputation will be limited.