Category: Business

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Don’t limit empowerment. But create accountability by having transparency

I often have discussions around the issue of accountability at work. 

My work deals with establishment of limits of authorities, internal controls, processes and all other stuff meant to ensure that organisational resources are expended wisely towards improving performance but without resulting in leakages or worse.

Frequently, the worry is when people have access to resources like money, they will squander them irresponsibly. When you have audit committees and other oversight and legal consequences, you naturally take safe and conservative positions in aiming to control amounts of authority and empowerment given to the rest of the organisation.

Unfortunately, this is a folly. It gives us a false sense of security that just because authority is restricted to but the very few at the top, then we have better controls and organisational performance.

The problem with concentration of authority at the top means that only the few people at the top of the organisation are authorised in making decisions for the organisation. The reality in today’s world is far from this. Because we live in a VUCA (volatile, uncertain, complex, ambiguous) world, knowledge and capability to make correct decisions are far more distributed. No single person has all of the information… and most certainly the few people at the top don’t have all of the information, nor the capability, nor the experience on all issues that the organisation is faced with. This is true especially with large and complex organisations. And hence, when these few elites make those decisions – there is therefore higher possibility of those decisions being wrong. The risk to the firm is far higher when power and authority is concentrated at the top.

The best way to address this issue of authority and decision-making powers in a VUCA world, is to empower decision making throughout the organisation to the relevant levels that have the necessary information, knowledge, experience and the performance that needs to be delivered. This seems quite obvious and natural, but in real life – not always applied. The reason for this lack of empowerment and autonomy is because the powers at the top are not confident enough that the rest of the organisation will be accountable for the decisions and resources to which they were given. 

A simple solution to this is to increase transparency within the organisation several fold. Let me explain and contrast two different models of governance: the first is of the traditional concentration of control at the top; the second is an empowerment and technology enabled transparency model.

Let’s say that the board of the company is concerned about the level of travelling and entertainment that the organisation is incurring.

So in the first model of governance, in order to control these expenses (and also the undesirable side effects of these), the board decides to limit authorities to decide and spend. This will work in reducing such decisions and spend, but also at the same time clip the opportunities for the organisation, and at the same time create false sense of security when the board is influenced into a decision without knowing all information and it turns out to be wrong. This happens when the board has to make too many operational and administrative decisions that it has little time to go into each decision in great depth. Of course, to address this the board could decide to take more time and detail to go into great details of everything the firm aims to do – all while applying a mindset of skepticism of the management. This in the long run creates an unhealthy culture within the firm.

In my preferred second model of governance, let’s say the board institutes a governance model of transparency around travel and entertainment decisions and spend. This model of transparency requires all spend on travel and entertainment be published on the firm’s internal website which is accessible to all employees in the firm. This can be achieved with information technology solutions without having human intervention. With such spend being transparent to all parties – decision makers and individuals empowered with these decisions will be more cautious themselves in deciding and incurring such spend. Thus, in this model of governance, we create a culture of self regulation which results in greater level of organisational efficiency by dispensing with surplus internal controls, committees, and supervisory steps and units. In this model of governance, people who are empowered with authority will quickly develop attributes of accountability, simply because the things they do and the results that they achieve are transparent throughout the firm.

Thus, transparency drives accountability. Radical transparency drives radical accountability. The relationship is linear.

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12 principles of highly adaptable, ethical and performing organisations

As a member of the Beyond Budgeting Roundtable (BBRT) I have been studying management activities that encouraged or impeded performance and adaptability in organisations.

Initially, it started out with the dysfunctional effects of budgeting. We all hated the budget, yet many companies go through the annual budget process religiously with nobody even questioning why we do it.

I started to question the value of budgeting when many of our units within the organisation start to claim that they could not carry out certain (seemingly important) tasks because of the lack of a budget. Whilst this is a shocking thing to hear, it is not uncommon. Listen carefully, and you will discover that this is one of the most common “excuses” for not being able to do things.

But as I investigated further, it was not just about the budget. It had to do with the whole interconnected nature of management activities, including the way the organisation is governed, the way people are made accountable, the way we motivate people and as well as the way we plan and control the organisation. There are twelve principles that fall into these categories of management practices. It can be found on the BBRT website as follows: http://bbrt.org/about/the-beyond-budgeting-principles/

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If you want innovation, you have to encourage independent thought

We live in an age where technology, customer expectations, and markets shift rapidly. Sticking with dogma and age old ideas, methods, products and services will no longer cut it.

Assuming that we believe in the above – and I would not be too far off the mark, I’d guess – then we need to be able to adapt, respond, anticipate these shifts before and as they happen. We need to be agile, and most of all we need to be innovative. We need to find even more effective solutions to old and new problems. What worked in the past will not guarantee to work in the future.

Innovation is the key to winning in the fast changing world.

But innovation is not just an activity. It is more than that. It is a mindset, a culture, a function that everyone plays – and not just some people in labs and research centres.

Like creativity, you cannot force innovation. Like creativity, innovation must be allowed to flow, naturally. The biggest enabler for innovation is allowing individuals the freedom to have independent thought.

The seed of a new idea would only come from a ground that is fertile with many different thinking. In groups of people, society and organisations – allowing people to think different allows them to explore new ideas, test new perspectives, find new solutions in ways never been thought of before. A social group that emphasises conformity over individuality will psychologically limit the collective minds. This is often the subtle tyranny of the majority.

A society or organisation that is conscious of these subtle effects will need to take steps to allow individuality and take these steps even further by bringing in people who would be expected to see things differently – given they come from different backgrounds and thus would naturally see things differently. Artists will see different solutions to problems than would engineers or accountants. People from different industries will see different ways to solve problems. This is vital in order to encourage innovation. Societies and organisations will need to infuse their own culture and groups of people with people from other backgrounds in order to create a much richer diversity of thought.

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Developing leadership at scale and speed requires a few catalysts

Strategy is not the problem. Leadership is.

Leadership to drive strategy, change and performance is a much needed but scarce commodity.

May programmes have been introduced in firms to develop leaders, yet not many result in satisfactory outcomes. Why?

Most programmes concern themselves with training, when in reality leadership needs to happen “out in the wild”, rather than in a safe environment like the classroom.

It is often said that leadership is taken, not given. Leaders will always rise to the occasion. But what occasion is needed?

But how do we get leaders to reveal themselves?

Create situations that demand leadership.

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There is a painful paradox in trying to separately optimise every part of a firm

Firms work on the basis of the interaction between different people, or groups of people. No single person in an organisation can deliver business results without having to rely on another person. The same applies to interactions between processes and systems.

Firms thrive on interconnectivity, interaction and interoperability.

This is why running optimisation / efficiency / target setting exercises (typical management activities) on discreet parts of the organisation often spells doom. Most insidious if performance measurements are done on discreet basis as this creates silos, and functional / individual mercenaries.

The firm may have every part meeting its targets and expectations, but the whole organisation failing in its purpose and strategic objectives.

This Harvard Business Review article describes this paradox best: Optimizing Each Part of a Firm Doesn’t Optimize the Whole Firm

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Throw out the annual target setting scheme, it’s disconnected to strategy anyway.

Again and again, we wrestle with the disconnect between strategy and our performance measurement systems.

Often our strategy is aimed at lofty and aspirational goals such as growing our business profitably and sustainably. However, we we sit down to define our annual targets we start to get into a negotiation process of what those annual goals are. On occasion, we argue (validly, of course) that this coming year’s goal will need to be softer than before – because the market situation is a lot tougher than we expect / our new product launch cycle is running behind, etc. So grudgingly, we agree that this coming year the targets would be softer or lower than the preceding year. As ever, we promise that the year after this, it would be better. Well, let’s see.

What happened to growing our business profitably and sustainably?

This is an example of how current performance measurement systems we implement are so disconnected with strategy at best, and downright value destroying at worst.

Some would argue that we should negotiate harder to reflect these strategic goals into the performance measurements. Unfortunately, this is an exercise that ties up valuable management resource and creates dissatisfaction. Worse, it can create resentment of the original strategic goals because we believe that those goals are impossible. And thus we breed this thinking internally.

This is why such performance measurement systems have to go. What is the solution? I will post about this later. For now, do give me your comments.

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The problem with performance management systems

Most performance management systems tend to be very rigid and often creates dissatisfaction and dysfunctional behaviours amongst employees.

These are often due to such systems being disconnected with the firm’s strategic objectives and its stakeholder needs.

An example is most firms want to improve performance – be it profits or service. Yet when performance management targets are identified, people are measured on things that have no or very remote connection to these objectives. Then management feel that staff are not doing enough to advance the firm’s objectives. Thus the dissatisfaction when it comes to appraisals.

Another angle to the problem is when determining the staff targets and KPIs, the discussion is frequently a negotiation with a view from the staff to achieve a good rating during appraisal. Hence, low balling those targets. The supervisor will either force a higher target through force of will or simply forget about it. Both approaches are disastrous.

Yet, every year many firms continue with this tedium and wonder why the firm’s results are not what it needs to be.

This is why it is high time we radically change this obsolete practice and explore something else.

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Strengthening governance in entrepreneural firms

As entrepreneur organisations grow in size, it is often very difficult for the founders (who are often owners) of the business to ensure every part of the firm is giving them the right level of returns and aligned with the right set of objectives.

Increasingly more so, there is a need to rely on professional managers specifically and employees in general to carry out their tasks in line with the founders’ expectations.

Thus there is no choice but to institute the appropriate level of governance with the simple purpose of ensuring the firm and its management are aligned with the founder and owners’ strategic objectives; that the firm has the right people; and that the firm is giving the right level of returns for the investments made.

However, there is also a need to ensure that governance does not handicap the firm’s dynamic entrepreneur spirit; or worse still result in paralysis.

To address this, there are three vital elements: (1) clarity and maturity of roles of the parties in the governance process; (2) transparency of decisions and information flows to enable self-management and fewer suffocating processes; and (3) human capital emphasis and alignment of purpose, values and goals – which is rigorously implemented from point of people attraction & recruitment, right up to development & leadership successions.

Let me expand a bit on each.

Roles and responsibilities in governance

It is primarily important to clarify the roles of the governors of the business (directors) who need only focus on strategy & capital use, human capital, and performance & outcomes.

This should be distinct from the managers of the business who have the freedom to do whatever that is needed within the boundaries set by the governors. Ultimately the managers are accountable for fulfilling the organisational purpose, values, strategy as well as the business performance, outcomes and returns.

For this to work effectively, the governors need to divorce themselves from operational decisions, sentiments and apply objective judgment on key strategic matters. The management should be given the freedom to execute operational decisions, and ultimately be held accountable to achieve the objectives set by the governors.

Keeping the roles of governors separate from the managements ensures that there are checks and balances, and thus enhances the governors’ ability to hold management accountable for the results of the business.

Transparency of decisions & information for self management

In order to avoid layers and extensive need for processes, the most effective form of governance is transparency of information and decision. With a high level of transparency, decisions can be open to review by a wider group of people and thus ensure sufficient rigour in the decision making process. The level of transparency ensures that softer issues such as integrity and moral issues are considered and thus creates a more ethical enterprise. This avoids the need to establish committees upon committees and several decision making layers.

To further assist in the self management (and thus reduced bureaucratic infrastructure): information transparency particularly with regards to performance, data for analysis ensures that the firm’s employees are provided with all the relevant information to form their own analysis and thus carry out decisions. Once those decisions are made, the transparency of the outcomes ensure that there will be checks and balances which will keep the persons accountable for those decisions “honest” in driving the right results. Thus, this avoids the need to have several performance review committees and meetings used to hold management and decision makers accountable for results.

Transparency of decisions and information ensures a more efficient way of driving the right decisions and accountability for performance.

Alignment of employees to purpose and values

Last but not least, an uncompromising emphasis on organisational purpose and values is vital to ensure that the two forgoing aspects of governance are doubly effective.

Be very clear that these are not complex rules that limits freedom and is difficult to understand and cascade through the organisation. Organisational purpose and values are a set of concepts that provide employees with “true north” and guidance for their daily actions. It is important that the firm constantly emphasises purpose and values throughout and at the same time involve employees in dialogues on these matters to develop greater buy-in and clarity without creating too many rules.

By having clear and uncompromising set of purpose and values, the organisation can there for ensure stakeholders act in the right manner in relation to their roles in governance, and how they use information and decision making transparency.

To implement this, it is necessary to have the methods to assess and communicate these values and purpose at the point of recruitment and throughout the employees’ life cycle within the firm. It is important to internalise these concepts and ideas within the firm through staff reviews – but be careful not to use it for the purpose of rewards, but use it as a recruitment, development and a tool for career progression.