Donald Sull of the London Business School knows what makes your organization tick. He is an authority on the kind of changes companies need to make in order to respond more quickly to changing markets, global trends and even crises. It seems like quite a few organizations could use his advice right about now. His theory of "managing by commitments" offers relief from the inefficiency of traditional management hierarchies.
BNET: You propose a more flexible approach for managing large organizations in turbulent times and in very dynamic industries. Can you explain "managing by commitments" and compare it to some of the more well-known paradigms of management?
Sull: If you look at how people think about getting things done in large complex organizations, they basically sort stuff into three broad categories. The first is about power: the organization is a hierarchy where information flows up and orders flow down, and you do what you're told or you're fired or demoted. -- This tends to create silos: the hierarchy is very up and down and doesn't work well for work that requires cooperation across different units or functions. It's pretty slow as well; it takes a long time for information to get up the structure and for orders to find their way down.
Another approach that really started to gain traction in the 1950s in Japan, and became more well-known in the 1980s, is management by process. These are standardized operating procedures for getting things done. They could be formal processes for production or logistics, or they could be for other processes like decision-making. This view of management sees the organization as a bundle of processes. Six Sigma--TQM [Total Quality Management]...all of these are variations on the same theme. This is hugely helpful--it allows you to squeeze out excess resources and continuously improve on what you do. Bit here we also have limitations, probably the biggest one being that standardization gets in the way of innovation. There's been some interesting work done by Mary Benner from Wharton and Michael Tuschman from Harvard. What they found was that the higher an organization's commitment to standardized processes, the lower the level of innovation.
Which brings us to our third approach: managing by commitment. Here, we look at an organization as a network of overlapping, continually evolving promises that people make to each other to get things done. The advantage and the power of this approach is that it lends itself quite well to situations that cannot be standardized: emergent strategies, innovation, one-offs or one-of-a-kind crises. It also works well when you coordinate among people who don't report to you: suppliers, distributors, etc. And that kind of work is quite important. There was a study done a few years ago that said 40 percent of all employees in the United States added most of their value to their organizations through these non-routine activities. And about 70 percent of the growth of employees in the U.S. was among people who did this non-routine, non-hierarchical work, so it's a big idea in the context of the economy as a whole.
BNET: So, what does this mean for the individual manager or group head who needs to interact with people on a daily basis? How does it change what they do?
Sull: My colleague Charles Spinosa and I have done a fair amount of research on how individuals make commitments within their teams. The most effective have five characteristics. First, they are public. They're made publicly and their progress is tracked publicly. Next, they're active. Partiesunderstand what they are agreeing to and what each party is requesting; people don't just nod, they really have to take responsibility for the commitment. Third, these are voluntary. The other party has the option to say something other than "yes"; they can refuse or make counteroffers. Fourth, commitments are explicit: it has to be clear who is committing. These aren't committees making promises, they are individuals. And it works best when it is perfectly clear to whom the commitment is made. And fifth and finally, they're motivating: the rationale is made clear--why it matters to the individuals and the organization is made clear.
Next week, Sull will illustrate how companies are using "management by commitments" to gain flexibility and capitalize on market opportunities.