Innovate or die

From Ford and General Motors 100 years ago to Google today, management models can provide great competitive advantage. In the past, companies found scientific and organisational models, which enabled them to mass-produce products faster and more cheaply or to organise global businesses more efficiently.

by Morice Mendoza, World Business editor
Last Updated: 23 Jul 2013

Today companies such as Google appear to have found new ways to mine the human potential of their staff in more effective ways than before. What is the essence of management innovation? How can companies capture it?

It is to answer questions such as these that Professor Julian Birkinshaw of London Business School joined forces with Professor Gary Hamel and others to form the Management Innovation Lab. In the next few years the Lab will be working with companies to encourage experiments in new management processes and methods. By working together Birkinshaw believes they will "co-create" management innovation that could encourage others to develop their own models suited to their needs. World Business talks to Professor Birkinshaw about the search for management innovation

What is the Management Innovation Lab for?

Our goal is to create a movement whereby our corporate and strategic partners all over the world do innovative work around the nature of management with a view that this will not only have a big impact for the companies involved but also that it will create some sort of collective groundswell of change.

What's the reaction so far?

Every company we talk to is tantalised. They say it is interesting. But many of them ask question such as, ‘Well I can see that management innovation has helped some companies at some points in time but how is it going to help me?' ‘What is the precise problem you are going to solve?' It's not easy to answer them because we are saying first of all that management innovation is not the solution. Management innovation is the set of tools and ideas that can be applied to any number of problems - not all problems, but a large number of problems. It can be around employee engagement. It can be around making yourself more innovative in the product sense. It can be about increasing your adaptability and resistance to problems. Once you have got over that problem with the companies, they will ask me, ‘Well, what will it look like?' And of course we can't tell them the solution because the whole point is we are using them to co-create something new. So all we can do is point to examples of either things we've been involved in or things that we've seen other companies do.

Don't companies die naturally when they have ceased to be competitive?

We know companies go through lifecycles; we know that many companies reach that stage in their life where they become big and slow-moving. And many of them survive for decades purely on the basis of inertia. GM is the classic example of this and yet that comes at enormous cost in terms of layoffs, bureaucracy and a lack of enthusiasm. The big question is, can we reignite the passion? And you and anyone else have a right to be sceptical as to whether this is possible. But I think it is a battle worth fighting for. The alternative of letting these companies just fade away is just too horrible to contemplate.

Can companies live forever then?

I'm a great believer in the laws of nature, the Darwinian view that a company should only exist when it is continuing to do a good job. As I look over industries I see new companies supplanting old companies and that's exactly as it should be. But if I'm advising one of the old companies, my tone shifts away from fatalism and moves towards the big question: What can you do to reinvent yourself? There are companies who have reinvented themselves. IBM is the classic example. It was close to oblivion 15 years ago and then it reinvented itself as this monstrous IT services company. We have to strip away the empirical reality of creative destruction and do what we can to help those dinosaurs invent anew.

How can companies release the full force of human imagination?

We know that when people work in small companies they have enormous passion. We know that when people work on projects of their own choosing they do it with enormous passion. And the flip side is that by and large when we are stuck in a factory working as one cog in the system we don't bring much passion to work. Of course there are certain jobs that will never be ones that develop passion. It's hard to imagine a self-organised call-centre, for instance. Because calls come in, they have to be distributed and someone has to answer them. We can make those factories less soul-destroying but ultimately there will always be factories.

What type of management model gets more out of people?

I think the idea that people create their own projects, and those projects are defined by who chooses to cluster around them rather than teams being allocated from above, is very alluring. Eden McCallum, a new management consultancy based in London is a beautiful example of this new model. It's a virtual organisation. They semi-employ a bunch of freelancers on one side and they have a bunch of client relationships on the other. Their job is essentially to help their clients create project teams out of their network of freelancers. So no longer are you a consultant being allocated to another job this week. Instead you are invited to put your name forward if you are interested in the project. Obviously once that project happens, you've essentially chosen your own job. I like to think of it in terms of flipping the responsibility around to that of the individual where they are making their own choices. Because when we make our own choices we are much more likely to pursue them with the passion.

What reward structures do you need for this?

I believe if you get the model right then the financial reward is almost irrelevant. You have to reach a level of financial reward where people feel they are getting a just return for their efforts - that they are being treated equitably. I used to do a lot of work in the area of corporate venturing. And they used to argue that you needed to reward people in corporate venturing departments in the way that private equity or venture capitalists are rewarded. Well this is nonsense because they made the decision to work for a company. They were not mortgaging their house for the risks being taken. All those people need would be to get a fair salary plus some bonus on the upside. And they're happy with that.

How do you train managers for 21st century management?

The first thing we need to do [to change an outdated mindset] is to start at home in the MBA world. I teach an elective course on management innovation, which the students sometimes find very frustrating. They have just taken 18 months of a standard MBA course. And then suddenly I say to them, actually all of those rules you were just taught are nothing more than traditions, hypotheses or ways of working that may or may not be right but certainly are not inviolable laws. And I say, everything's up for grabs. The way that we hire people, the way we allocate resources, all of these things can and should be challenged. They love the course. It is self-selecting of course. They wouldn't take the course if they weren't already mavericks by nature. My ambition is to say, let's bring some of this stuff right in at the beginning of the MBA. We need to teach them the way the world currently works so that they can live in that world, but we also need to teach them how to challenge the rules.

What kind of leader makes management innovation happen?

What I've discovered is that you tend to get a few enlightened senior people who say that in order to legitimate a new management technique we need to tie it to our key performance indicators (KPIs). I've seen companies do this. And at least one company has adopted it in its official metrics. The alternative is in a Google or a 3M where it has just become so basic to the culture that it is accepted. There are two very different ways of looking at management innovation. One is to say there are the Googles who grow up that way, it is in their DNA. And the other way is where you change the practices within existing companies. For instance, UBS did this and made dramatic strides in its wealth-management business. It basically eliminated the whole budgeting process in this business division because it was getting in the way of growth. And it switched to ‘I can invest what I like as long as I am held accountable for what I invest', instead of ‘I will negotiate the budget with my manager'.

What was the catalyst for the change at UBS?

It needed to find a new way of growing. And a very enlightened boss - Marcel Rohner who is now the chief executive of UBS Group - gathered the group together and said, ‘Let's look at what the biggest blockers are'. Budgeting emerged as the single biggest blocker to growth. So it took an incredibly creative approach. This is what it is all about. Rather than building practices that GE or Proctor & Gamble have employed, for example, you have to have the courage to develop your own model and stick with it.

Will Google become old management one day?

As new practices emerge they rarely completely supplant the old practices. The old layers are still there but on the surface there are new elements, which reflect more modern ways of thinking. As Google evolves it will pick up many of the traditional traits of many large companies. There are certain aspects of being big that cause you to create more rules and hierarchy. But my hope is that, first of all, it will retain a lot of the new DNA that has made it what it is and, secondly, of course some of those principles it has have pioneered will also be layered into traditional organisations.

Is there enough variety in management thinking?

The trouble with management is that if you look at the number of different management courses that are out there it's actually very difficult to find variety. You'd expect small Indian and Chinese companies coming onto the world stage for the first time to be managed differently. But when you scratch under the surface you find that Western consultants, lawyers and accountants have advised them. They're all picking up our bad practices. So actually it's quite hard to find companies with innovative management models such as Google or Semco (a Brazilian firm owned by Ricardo Semler), which are genuinely doing something that is different. So most of their wacky management models won't survive. But little bits of them will.

Is Apple a management innovator?

Obviously Apple is brilliant at a lot of things. Certainly I remember in the heyday of Apple in the 80s it was doing some very innovative things around management. The original Macintosh team was a classic example of a skunk works (teams working on new ideas). Is Apple's management model today innovative? I don't know that it is. It is not just Steve Jobs but a collection of incredibly clever and insightful people who are leading the charge.

Are companies like Apple over-dependent on charismatic leaders?

There is a very important point there. You can't rely forever on one or two charismatic people because sooner or later they run out of good ideas or they fall under a bus or whatever. So you need to find some way to institutionalise the Steve Jobs way, for instance. What you are trying to do is almost codify the essence of his maverick style and trying to create a company around that. And it's possible Apple does that. Certainly Google has got elements of that maverick quality that says ‘we will encourage people to bet big'.

What is the essence of management innovation?

We need to be much more open to ideas, try lots of new things and be prepared to fail quickly and often.

How do you encourage your people to be open-minded?

It's a massive issue. At the individual level we climb up a hierarchical system, reach some level of power and we know in our minds what we should be doing now is giving up an awful lot of that power. Because the "Wisdom of the Crowd" tells us that the people below us are far more likely to come to a good decision collectively than I am. So everything analytically is telling us we should be giving up power and everything our experience tells us makes us want to hang on to that power. Former UK prime minister Tony Blair did the right thing when he gave up interest-rate power to the Bank of England just after coming to office in 1997. This turned out to be one of Labour's most lasting policies on the British economy. Clearly it helped in Mr Blair's case that he had committed the government to giving up power before getting it. It is far harder to give it up after you get a taste of power.

Can you think of a company that has institutionalised a maverick model?

Larry Huston from Proctor & Gamble became quite famous for the company's ‘connect and develop' model [that builds R&D communication networks between insiders at P&G and thousands of scientists outside]. What it did was to institutionalise it. Rather than get into the mindset of one individual, P&G institutionalised it by building a set of systems that gave P&G access to an enormous number of people: scientists from around the world. It created structures inside the company that almost mandated the use of those systems. It allied this with the very visible goal set by P&G's chief executive AG Lafley - which was that 50% of its new ideas should come at least in part from outside. So in order to fight that natural predisposition to hoard power it created a whole infrastructure to mandate the use of external sources.

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