Changing the Role of Top Management: Beyond Systems to People

The postwar decades were boom years for management systems. A generation of top-level managers embraced the development of a rich portfolio of planning and control tools designed to help them deal with the rapid pace of corporate growth and diversification. No company participated in the managerial revolution more enthusiastically than the Norton Company, an industrial abrasives manufacturer and a competitor of 3M. In its search for profitable growth through diversification, Norton in the early 1970s pioneered the use of profit impact of market strategies, known as PIMS, the computer model that analyzed the impact of 37 factors on a business’s profit potential. It became one of the first companies to adopt the Boston Consulting Group’s growth/share matrix, which allocated strategic roles to a company’s businesses based on their cash-flow characteristics. Always eager to adopt the latest management system, Norton was also an early convert to the nine-block grid, which allowed companies to match strategies to each of their businesses according to their competitive strengths and the attractiveness of their particular industry environments. Backed by planning and control reports and supported by staff analysis, Norton’s corporate executives used these and similar tools to screen acquisitions while pushing existing businesses to improve profits constantly. Yet, in spite of all Norton’s state-of-the-art management systems, its diversification efforts never met management’s or shareholders’ expectations, and the performance of its core abrasives business remained disappointing. Persistently poor results left the company vulnerable, and, in 1990, it was absorbed into the French giant, Compagnie de Saint-Gobain. Meanwhile, 3M achieved the diversification aims that eluded Norton by taking a very different tack. Leaders there placed little emphasis on top-down planning and control. Instead, they nurtured the innovative ideas of frontline engineers and sales representatives, thereby building an entrepreneurial engine that generated a stream of profitable new products and promising new technologies. Going into the postwar boom, 3M and Norton were roughly the same size. By the mid-1980s, 3M was reporting sales eight times those of its old competitor. Ironically, just as Norton was swallowed up by Saint-Gobain, 3M was named for the fifth time in six years to Fortune’s list of the Ten Most Admired Corporations. One factor chiefly explains such different results for two companies with similar origins and goals: their management philosophies and styles. If Norton was an archetype of a systems-driven company, 3M epitomized a people-centered entrepreneurial model. That model is essential to competing in today’s postindustrial, global markets. Over the years, 3M’s top management developed a very different relationship with its organization’s members than the one that evolved at Norton. Although information, planning, and control systems were clearly part of the management process, they did not define 3M’s primary communication channels Individual entrepreneurs there have always been able to present their ideas directly to management and to discuss them in face-to-face meetings. As a result, 3M’s top management has seen its role much less as directing and controlling employees’ activities and more as developing their initiatives and supporting their ideas. Chairman and CEO Livio D. DeSimone believes that 3M’s philosophy has been at the core of its ability to renew itself continuously: “Senior management’s primary role is to create an internal environment in which people understand and value our way of operating… Our job is one of creation and destruction—supporting individual initiative while breaking down bureaucracy and cynicism. It all depends on developing a personal trust relationship between those at the top and those at lower levels.” From Organization Man to Individualized Corporation Norton’s systems-based approach to management was part of what we described in the first article in this series as the strategy-structure-systems doctrine. The doctrine took hold before World War II, when increasing size and complexity led the CEOs of several prominent companies to delegate most of their operating decisions to newly installed division-level managers Senior managers recast their own jobs as defining strategy, developing structure, and managing the systems required to link and control the company’s parts. The role of systems in that troika of tasks was crucial. As the divisional structure first made diversification possible and then competitively necessary, systems became the essential tools that top-level managers needed to understand and control their sprawling enterprises. The strategy-structure-systems management model enabled companies to grow for more than 50 years. But, while those at the top saw increasingly sophisticated systems as the lifelines that linked them to their distant and diverse operations, those deeper in the organization felt them as chains that pulled them to heel. The problems that many companies are experiencing today are inherent in the philosophy underlying that model, which originated with the teachings of Frederick Winslow Taylor. Early in this century, Taylor wrote that management’s role was to ensure that workers’ tasks were well defined, measured, and controlled. With the objective of making people as consistent, reliable, and efficient as the machines they supported, managers came to regard their subordinates as little more than another factor of production. In that context, managers designed systems, procedures, and policies that would ensure that all employees conformed to the company way. The goal was to make the middle managers’ and workers’ activities more predictable and thus more controllable. In doing so, they helped create what William H. Whyte, Jr., in 1956 labeled “the organization man.” A problem with that management approach was that its assumptions about the unpredictability and pathology of human behavior became self-fulfilling prophecies. The systems that ensured control and conformity also inhibited creativity and initiative. Stripped of individuality, people often engaged in the very behaviors that the system had been designed to control. At best, the resulting organizational culture grew passive; with amused resignation, employees implemented corporate-led initiatives that they knew would fail. At worst, the tightly controlled environment triggered antagonism and even subversion; people deep in the organization found ways to undermine the system that constrained them. For instance, by the end of the 1980s, Paul Lego, then president of Westinghouse Electric Corporation, was boasting to Fortune that the company had “the most sophisticated strategic-planning system in the United States…allowing us to portfolio-plan on a micro basis.” The managers running that portfolio of businesses, however, soon began to spend much of their time simply justifying their units’ survival. They stretched projections, inflated estimates, and disguised data—sometimes with ruinous results. Eventually, bad loans and poor investment decisions surfaced, and the resulting write-offs cost Westinghouse $ 5 billion. Westinghouse executives had allowed their management systems to impede rather than support relationships with those below them in the organization. The generation and transmission of consolidated and formatted reports replaced direct communication from people representing their own ideas, analyses, and proposals. And the opportunity to discuss the proposals was lost in the ritualized presentations and reviews of the data. One manager likened systems-based communication to a narrow and unstable rope bridge looping across the widening information and knowledge gap that separated senior executives from frontline managers. Systems-based communication is an unstable rope bridge across the knowledge gap that separates executives from employees. In our study of 20 large companies that have either avoided or successfully navigated such difficulties, we found top-level managers who have been able to reconnect with the people in their organizations. Their objective was to reinforce the rope bridge of systems-based communication with the steel girders of frequent personal contact. They sought not only to improve communication but also to stimulate those who felt alienated under the systems-dominated management approach. Percy Barnevik, CEO and president of ABB Asea Brown Boveri, frequently challenges his management team to tap more of the talents of their people. “Our organizations are constructed so that most of our employees are asked to use only 5 % to 10 % of their capacity at work,” he says. “It is only when those same individuals go home that they can engage the other 90 % to 95 % —to run their households, lead a Boy Scout troop, or build a summer home. We have to be able to recognize and employ that untapped ability that each individual brings to work every day.” Leaders such as Barnevik are beginning to articulate management’s challenge in terms of engaging the unique knowledge, skills, and capabilities of each member in the organization. They are questioning the assumptions of Taylorism that encouraged the use of systems and policies to force individuals into a corporate mold and are instead developing a management philosophy based on a more personalized approach that encourages a diversity of views and empowers employees to develop their own ideas. By building organizations that reflect the abilities of their members, managers are attempting to exchange the organization man for what we call “the individualized corporation.” That shift is part of a broader redefinition of top management’s role that results from the need to replace the obsolete strategy-structure-systems doctrine with a leadership philosophy built on purpose, process, and people. The shift from systems-driven to people-oriented management is pivotal because only then can top-level managers broaden their roles as we have argued that they must: from defining strategy to building corporate purpose and from framing structure to developing organizational processes. Creating an individualized corporation does not mean stripping the organization of all its formal systems, policies, and procedures. It does require redefining them so that they support rather than subvert top management’s ability to focus on the organization’s people. Top management can: reduce its reliance on strategic-planning systems by influencing the organization’s direction through the development and deployment of key people; lighten the burden of control systems by developing personal values and interpersonal relationships that encourage self-monitoring; and replace much of its dependence on information systems by developing personal communications with those who have access to vital intelligence and expertise. Setting Direction by Deploying Key People The ways in which top management at 3M and Norton shaped strategic direction contrast strikingly. The planning and forecasting system that Norton had developed in its early years allowed owner-managers to control the company’s strategic direction through corporate-level investment decisions. As late as 1956, all capital appropriations of more than $ 1,000 still required board approval. And, when professional executives began to replace family management in the late 1960s, they pushed the tradition of systems-based, top-down direction and control to even higher levels. By contrast, 3M’s formal planning and capital budgeting systems developed much later and played a secondary role in top management’s decision making. The company did not even have a corporate strategic-planning system until the early 1980s. Under the enduring influence of longtime CEO William L. McKnight, successive generations of top-level managers believed that their primary job was to develop and support the entrepreneurs who operated on the company’s front lines. More large companies have followed Norton’s approach than 3M’s. But, as the industrial era is overtaken by the information age, those at the top of large companies have found that their strategic-planning and capital-budgeting systems are increasingly inappropriate in an environment that demands knowledge-based flexibility and responsiveness. The cost in dollars and time of collecting, analyzing, and transporting operational information up through the hierarchy has begun to exceed the benefit that top management’s input provides. As a result, many corporate leaders have begun to embrace a new philosophy of strategic management. In the organizations that we studied, leaders are downplaying their strategic decision-making role and delegating much of that responsibility to frontline managers, who are closer to the business. Top-level managers still influence long-term direction, but they recognize that they have their greatest impact by working internally to develop the organization’s resources, knowledge, and capabilities as strategic assets. That is not to say that managers are no longer involved in formal planning. ABB, for instance, operates a highly sophisticated strategic-planning system. But executives view it as only one component of an organizational infrastructure that they can use to build relationships with the managers reporting to them. Goran Lindahl, ABB’s executive vice president responsible for power transmission and distribution, sees his most important role as coach and developer of his management team. He estimates that he spends 50 % to 60 % of his time communicating directly with his people in a process he calls “human engineering.” Lindahl begins with “unlearning experiences,” designed to help managers recognize their limiting assumptions and break old habits. Those experiences might involve little more than a series of informal discussions focused on honest self-appraisal, or they could entail a visit, a temporary assignment, or even a transfer so that managers are exposed to different ideas and practices that have succeeded elsewhere in the organization. Once developing managers are open and receptive, Lindahl spends time discussing overall objectives and standards with them, always leaving room for them to embrace the goals as their own. Over months and years of working together, he watches as individuals internalize the objectives and develop the competence to implement them. Gradually, he gives his managers more and more autonomy. One ABB vice president spends 50 % to 60 % of his time talking directly with his people. He calls it “human engineering.” Thus, to Lindahl, the empowerment of a manager is not an overnight transfer or an abdication of responsibility from a boss to a subordinate. It is a gradual delegation process that requires substantial top-management involvement. He summarizes his role this way: “People want to learn and are greatly motivated and satisfied when they do. Top management’s challenge is not only to help people develop themselves but also to ensure that they do so in ways that support and reinforce the company’s objectives. My first task is to provide the frameworks to help engineers and other specialists develop as managers; the next challenge is to loosen the frameworks and let them become leaders—those who are ready to take responsibility for setting their own objectives and standards. When I have created the environment that allows all the managers to transform themselves into leaders, we will have a self-driven, self-renewing organization.” As they become more directly involved in developing their management teams, senior managers find that the process is also an effective means of shaping the company’s goals. For example, soon after being named vice chairman of PepsiCo in late 1993, Roger Enrico decided he could add value best by devoting himself to coaching up-and-coming executives. Instead of just increasing the executive-development budget, Enrico committed half of his own time to being an on-call coach to PepsiCo’s division presidents. He organized a series of retreats for the managers most likely to be the next generation of PepsiCo leaders. He asked all the participants to bring a “big idea”—a proposal that they believed could have a major impact on their business. Eschewing the usual outside management gurus and facilitators, Enrico conducted all the sessions himself. After five days, the managers returned to their units to implement their projects. Ninety days later, they reconvened to report on their progress and discuss follow-up action. Through such retreats, Enrico has created an effective way to develop the skills and confidence of a group of high-potential managers while building his own relationship with them and learning about their thinking. Equally important is that he can learn more about the key issues facing the company’s businesses and can directly influence his managers’ response to them. For Enrico, the retreats are a far more dynamic means of shaping the company’s direction and priorities than any formal strategic-planning system. As important as such development efforts are, however, there are clearly limits to the number of people whom any executive can work with on a personal basis. To leverage their commitment to developing people, top-level managers in most of the companies that we studied have begun to spend at least as much time with the top human resources executive as with the chief financial officer. In the first article in this series, we described the efforts of Komatsu’s president, Tetsuya Katada, to replace his company’s strategic intent “to catch up with and beat Caterpillar” with the broader objective of “Growth, Global, Groupwide,” which was designed to liberate rather than constrain the organization. As part of the change, Katada radically revised Komatsu’s top-down planning model and softened the systems-driven management style. He also began to overhaul Komatsu’s human resources policies to ensure that they reinforced the new corporate goals. For instance, “Groupwide” in the new corporate slogan was shorthand for a strategic goal of turning Komatsu’s capabilities in electronics, robotics, and plastics into new, self-sustaining businesses that would eventually account for 50 % of the company’s sales. Rather than forcing the necessary linkages through the company’s traditional top-down “management-by-policy” approach, Katada realized that he could move the organization toward that goal by adjusting the company’s personnel recruitment, development, and assignment policy. Komatsu had typically recruited its best people into corporate staffs, the central research laboratory, or the construction equipment division, and it transferred those not destined for top corporate jobs into subsidiaries and affiliates. Katada broke that habit by declaring that, for at least five years, Komatsu would commit 70 % of its new university recruits to its nonconstruction businesses; at the time, those operations accounted for little more than a quarter of the company’s sales. Next, to develop a web of relationships across the company, he proposed a new career-path concept. It includes two innovative features: a “return ticket” policy to encourage the transfer of young employees to subsidiaries and affiliate companies that had previously been viewed as banishment; and the Strategic Employee Exchange Program, which allows employees to work on projects in other parts of the company on a short-term basis. Furthermore, Katada gradually gave about half the company’s top 27 executives oversight responsibility for the new nonconstruction businesses that he was trying to develop. His intention was both to broaden the perspectives of those at the top and to create new career paths and role models for the company’s rising managers. By focusing as much on assignment patterns as on strategic planning, Katada signaled the company’s commitment to nonconstruction businesses and began to build the management capabilities that those businesses would demand. The year before his appointment as president, nonconstruction sales were 27 % of total sales; just four years later, they climbed to 37 % . Komatsu’s “return ticket” policy encourages transfers to units previously seen as banishment. In companies such as ABB, PepsiCo, and Komatsu, strategic planning is alive and well. Yet the senior managers in those companies recognize that their traditional roles—final review and approval of abstract plans and proposals—gave them limited ability to shape their companies’ directions. Today, they’re having a more lasting impact by becoming more involved in shaping the skills and relationships of key people in the middle levels and on the front lines of their organizations. Achieving Control Through Internalized Behaviors More difficult than modifying top-level managers’ role in strategic planning has been breaking their dependence on formal control systems. As rapid growth and diversification have required companies to become more decentralized, corporate-level executives created systems that would permit them to retain control even as they delegated authority. At Norton, for instance, a corporate controller named Henry Duckworth became the company’s most powerful nonfamily manager in the early 1920s. Duckworth designed, installed, and, for nearly 50 years, managed an elaborate financial-reporting system through which owner-managers exercised their commitment to thrift and control. At the outset of the Great Depression, the systems-driven, control-based model allowed Norton’s top management to respond quickly to a 75 % drop in sales by slashing costs, halting investment, and shrinking the organization. As late as the 1960s, Norton’s owner-managers were still using Duckworth’s systems to make all major pricing changes, to approve all expenses of more than $ 100, and to conduct performance reviews of all salaried managers. Dependence on control systems can be a hard habit to break; for 50 years, Norton used the same system to approve all expenses of more than $ 100. Over several generations of corporate leadership, the role of top management as operational controller was firmly established at Norton and at most other large, modern companies. Even as the growing diversity and increasing dispersion of frontline operations stretched senior managers’ ability to understand many of the decisions they were reviewing, no one questioned their responsibility to exercise that control—or the system that gave them the power to do so. In the past couple of decades, however, the problems inherent in such systems have begun to appear. When product and process technologies begin to change swiftly, standard costs become obsolete. In increasingly dynamic markets, last year’s sales have diminishing value as a performance benchmark. Even budgeted objectives have little relevance when external conditions are unpredictable, and the internal budgeting process is flawed by managers’ temptation to game the system. Most control systems were designed to take the pulse of an organization on a monthly or quarterly basis; they simply cannot detect—never mind, respond to—operational changes that occur weekly or even daily. The lag is amplified by the time it takes to record, consolidate, transmit, and analyze data, move it up the hierarchy for review, then back down for implementation. The most basic problem for companies that depend heavily on formal controls is the assumption that those at the top are the most competent to act on the data and analyses that the system generates. Many corporate executives have recognized their dwindling ability to make good judgments on the basis of abstract and outdated information about operations of which they have limited understanding. As a result, they are supplementing or replacing their control systems by finding more subtle means of influencing the people in their organizations who are closer to the action. Instead of intervening with corrective action, they are finding ways to affect individual motivation by coaching managers in self-monitoring, self-correcting behavior. At Ikea, the Swedish home-furnishings stores in 20 countries that together represent more than $ 5 billion in sales, top management decided to abolish the company’s budgeting system altogether in 1992. Today, it relies instead on a set of simple financial ratios that act more as benchmarks for carefully managed internal competition than as standards for top-management control. Even giant General Electric has changed its budget system, de-emphasizing the control aspect that led to game playing and to setting minimal acceptable targets. Today, managers focus on a set of self-generated stretch targets that are aimed more at igniting ambition than at imposing control. In the companies we studied, the most basic characteristic that top managements were developing to supplement formal control systems and reduce their dependence on those systems was organizational transparency. Corporate leaders found that when people in the organization clearly understand corporate objectives, they measure their own performance against those objectives. Given the same information as their supervisors, those in middle and frontline positions usually reach the same conclusions as their bosses. More important, the arrangement allows frontline managers to fix problems at their own level instead of sending variance reports up the hierarchy and then waiting for top-down judgments. An example is ISS-International Service System, the cost-conscious Danish company that has grown from a local office-cleaning contractor into a $ 2 billion multinational business employing more than 10,000 people. The company’s entire control process is built around founder and president Poul Andreassen’s belief that people at all levels of the organization will make the right decisions if they are properly informed. He encourages the thousands of cleaning-team supervisors to run their operations as if they were independent businesses. To help them, he provides them with financial reports by individual cleaning contract. The detailed reports show direct labor, material, and equipment costs, as well as overhead charges allocated by the branch, district, and regional offices. Once frontline supervisors are thoroughly trained, they are able to interpret the data and understand the business’s economics. Andreassen finds that they use that information to control costs—even exerting pressure on middle and senior managers to provide value for the overhead they generate. He could never achieve that kind of control through a controller’s office. Besides teaching those at lower levels how to monitor and correct themselves, as the ISS program clearly does, companies also have had to instill the self-discipline that motivates people to do so. Andersen Consulting inculcates in each of its recruits the standards of performance that have become institutionalized as “the Andersen way.” New associates from around the world attend the Andersen Consulting Client Engagement Training Course, a six-week program known as ACCENT, half of which is held at the firm’s campus in St. Charles, Illinois. There, participants not only receive training in the most current tools and concepts in their profession but also are indoctrinated in the firm’s core values. For example, the requirement to attend class in business attire emphasizes the firm’s professional discipline, the 80-hour workweeks underline its strong work ethic, and the mutual support required by the demanding workload demonstrates the importance of strong interpersonal relationships. The Andersen acculturation process continues on the job. New employees receive an additional 1,000 hours of instruction in their first five years. The uniform values, professionalism, and dedication displayed by Andersen employees prompt competitors to call them Andersen androids. But the derision may contain a hint of envy because the internalized norms allow Andersen to give its personnel a great deal of freedom without endangering the firm’s standards. Some companies that we studied create a self-regulating process by harnessing competition among peers. As we discussed in the second article in this series, Intel’s norm of “constructive confrontation” encourages—indeed, requires—those with the most relevant information and expertise to enter the debate on key decisions. Thus the company has built an effective control mechanism right into the organization’s ongoing activities. Banc One Corporation, a bank based in Columbus, Ohio, which ranked eighth in the United States in assets and second in market value in 1992, uses what it calls “share-and-compare” management. In an industry known for its tight systems and restrictive policies for frontline managers, Banc One develops entrepreneurs in its subsidiary banks. Although its Management Information and Control System (MICS) is among the most sophisticated in commercial banking, corporate managers pride themselves on how little they intervene in the operation of their affiliates. Banc One’s legendary chairman and CEO John B. McCoy believes that MICS is his most powerful tool precisely because it reduces the need for corporate intervention. Each bank’s managers have access to the performance of every other bank in the system. Because managers do not want to see their bank at the bottom of the monthly peer-comparison report, they actively seek out best practice to improve performance. In each of the companies that we have described, strong management control is vital: Ikea has to control the costs and flow of 10,000 products from 1,800 suppliers to 100 stores in 20 countries; ISS operates in a highly competitive contract-cleaning business with razor-thin margins; and Banc One must ensure that its 100 affiliate banks are able to deal with the risks and vicissitudes of financial markets. Yet in each of those companies and in most of the others in our study, top-level managers use control systems in a supporting rather than a dominating role. Particularly in the past decade, the systems-driven approach of hierarchical review and corrective action has taken a backseat to a people-centered management model. In that model, top management’s key role is to create an environment in which managers and employees monitor and correct themselves. Managing Information Flows Through Personal Relationships Historically, formal systems have also given top management control over the information flows that are the lifeblood of any organization. As Norton’s businesses grew larger and more complex, the company created a business analysis department to handle the flood of data. By the mid-1920s, statistical analysts were generating 80 different reports to feed top management’s growing appetite for information. The more authority top-level managers had to delegate, the more information they needed to maintain their control. When the computer arrived, the corporate executives at Norton, as at most other large companies, saw the new data-processing capacity simply as a supercharger for existing manual information systems. They commissioned studies to determine future information needs, and they invested in the prescribed hardware and software. Yet the returns on those huge investments have ranged from disappointing to disastrous. The problem in many companies lies in the way they defined the opportunities of the information revolution. They thought the challenge lay in harnessing the power of data processing when it really lay in understanding information technology’s potential for developing and diffusing knowledge as a source of competitive advantage. Most corporate leaders manage information the way they manage capital—that is, as a scarce resource that they can collect, store, and allocate as they see fit. But far from being lifeless and timeless, information is vital and volatile. To have value, information must be linked to other information. Only then does it become a source of knowledge and the basis of organizational learning. Thus top management’s principal challenge is not to design systems that will process data more efficiently but to create an environment in which people can exploit information more effectively. Discussions with top-level managers in our study revealed that data processing systems are neither the most important nor the most effective means of collecting, evaluating, and transporting information; personal communication best serves that role. The challenge for managers is to prevent the organization from devoting huge amounts of time to serving the needs of information systems. Instead, managers must realign the systems so that they serve the needs of the members of the organization—particularly their need to communicate with one another. As self-evident as that statement may seem, there are many companies in which systems are not only the primary source of information used to make decisions but also the dominant topic of internal communication, with managers debating the accuracy and relevance of the data they generate. Top management takes a major step when it realizes that the organization’s information systems must support rather than dominate the discussions about core business issues. At ABB, CEO Percy Barnevik took such a step when he ordered the development of the ABB Accounting and Communicating System, called ABACUS. It provides people at all levels of the organization with simultaneous access to precise reports generated from a single database. Barnevik’s intent was to create an undisputed basis for productive discussions, in which frontline managers could decide on action rather than debate the validity of the data. In that respect, ABACUS has been a success, but as Ulf Gundemark, an ABB worldwide business manager, explains, the system alone is insufficient: “ABACUS is fine, but it can provide only historical financial information. To anticipate problems and understand alternative courses of action, you need a strong personal network. We all work intensively at that.” Top-level managers in other companies are coming to the same conclusion: Personal relationships are much more effective in communicating complex information, sensing subtle signals, and transferring embedded knowledge. Anita Roddick, the founder and managing director of the Body Shop International, abhors formal systems. She believes that communication is much more effective than reports at capturing employees’ attention and triggering action. Her organization is designed “to maintain a constant sense of change, even anarchy,” she says. As a way to convey her excitement about the products and her interest in customers to the employees and franchisees in 700 Body Shops in more than 40 countries, Roddick has installed a bulletin board, a fax machine, and a videocassette recorder in every shop. She continually bombards her employees with images and messages designed to get them talking. She visits stores to tell stories and listen to employees’ concerns, and she holds regular meetings with cross sections of employees, often at her home. In all her personal communications, Roddick taps into the organization’s informal networks, even by planting ideas with the office gossips. She encourages upward communication through a suggestion scheme run by the irreverently named Department of Damned Good Ideas. Another process allows any employee to bypass the formal systems and communicate directly with a director-level executive on any issue. Ingvar Kamprad, founder of Ikea, also prefers to communicate through personal networks rather than formal systems. Throughout his 30-year leadership of the company, Kamprad has transferred priorities on what he describes as “a mouth-to-ear basis.” He seeds the organization with “culture bearers,” individuals who exhibit management potential and share the company’s values. Throughout the 1980s, Kamprad led weeklong training sessions on Ikea’s history, culture, and values. Then, the company assigned the ambassadors who attended the sessions to key positions worldwide. By the early 1990s, more than 300 cultural agents were serving as nodes in a personal communication network that could collect and transmit information without the distortion that more formal information systems often introduce. Most managers also realize, however, that the challenge goes beyond creating their own communication links. They must build a network through which all members of the organization can exchange information, develop ideas, and support one another. To do so, they must nurture the horizontal information flows that vertically driven, financially biased formal systems long ago short-circuited. At Becton Dickinson and Company (BD), a health-care-products company, domestic and international managers had long been insulated from each other, despite the existence of an information system that was designed to prevent that problem. Although formal reports could identify common problems and opportunities and assess their importance, they could not so easily communicate their causes and potential solutions. Such subjective information required personal interaction. For example, when BD’s blood-collection product, Vacutainer, performed below expectations in Europe in the mid-1980s, the U.S.-based product development managers refused to modify it. Their formal reporting system confirmed the lower-than-forecast European conversion rate, but it did not help them understand the cause of the problem. The European managers knew that their customers were worried about the safety of the new product, but U.S. managers had dismissed that explanation as an excuse for poor marketing implementation. And although the system was able to calibrate precisely the shortfall in market penetration, it was never able to bridge that gap in communication. Not until AIDS made blood-handling safety a larger concern in the United States did BD’s domestic managers understand what the European managers had tried to tell them. Such incidents convinced the company’s top management that its heavy reliance on formal, systems-driven communication was restricting its ability to learn from its overseas managers. Ray Gilmartin, who was BD’s CEO at the time, helped create global teams in each of its businesses in the hope that improved communications would lead to more effective cooperation between domestic and international managers. The supposition has proved to be accurate. The worldwide blood-collection team and others like it have helped develop cross-border strategies and launch global products. Team membership has become a mark of status, and a global network has become an important career asset. Indeed, Gilmartin cites such cross-border relationships as one of the keys to BD’s success in expanding its international sales from less than 30 % to almost 50 % of the company’s total sales in just six years. At BD, ABB, and most of the companies that we studied, executives have been rethinking their role in managing organizational information. Instead of building systems to collect data solely to help them make top-level decisions, they now realize that they must ensure that all employees have access to information as a vital organizational resource. In the information age, a company’s survival depends on its ability to capture intelligence, transform it into usable knowledge, embed it as organizational learning, and diffuse it rapidly throughout the company. In short, information can no longer be abstracted and stored at the corporate level; it must be distributed and exploited as a source of competitive advantage. A Changing Employment Contract The strategy-structure-systems management doctrine rests on a relationship between the company and its employees that is fast becoming irrelevant. The assumption has been that capital was the company’s most critical and scarcest resource and that labor’s role was simply to leverage the company’s investment in equipment and machinery. An implicit employment contract held that top management’s job was to ensure the company’s short-term profitability and long-term competitiveness by making sound investment decisions, and employees were to support those investments by doing as they were told. In exchange for their loyalty and sacrifice of autonomy, employees got wages and job security. Those assumptions provided the foundation for the modern corporation’s authority-based structure and the logic for the systems and processes that were required to pull plans, proposals, and performance data up the hierarchy for top management’s input and control. In a postindustrial environment, most companies are no longer well served by the old management doctrine or its implicit employment contract. In the emerging information age, the critical scarce resource is knowledge—composed of information, intelligence, and expertise. Unlike capital, knowledge is most valuable when it is controlled and used by those on the front lines of the organization. In a fast-changing, competitive, global environment, the ability to exploit knowledge is what gives companies their competitive advantage. Unlike capital, knowledge is most valuable when those on the front lines control and use it. The implications for top-level managers are profound. If frontline employees are vital strategic resources instead of mere factors of production, corporate executives can no longer afford to be isolated from the people in their organizations. Furthermore, roles and responsibilities must be reallocated, with those deeper in the organization taking on many of the tasks formerly reserved for those at the top. In short, corporate executives must adopt the people-oriented model of management that General Electric’s Jack Welch described in an interview with Noel Tichy and Ram Charan (HBR September–October 1989): “Above all else…good leaders are open. They go up, down, and around their organization to reach people… It is all about human beings coming to see and accept things through a constant interactive process aimed at consensus.” Thus, behind the delayering and downsizing in most companies, a quieter revolution has been taking place. It has redefined employees’ roles and, in doing so, has rewritten the implicit contract they had with their employers. GE’s old assumption of lifetime employment had produced what Welch calls “a paternal, feudal, fuzzy kind of loyalty.” Now Welch advocates a change: “My concept of loyalty is not ‘giving time’ to some corporate entity and, in turn, being shielded and protected from the outside world. Loyalty is an affinity among people who want to grapple with the outside world and win… The new psychological contract, if there is such a thing, is that jobs at GE are the best in the world for people who are willing to compete. We have the best training and development resources and an environment committed to providing opportunities for personal and professional growth.” What Welch and other corporate leaders now advocate is a complete reversal of the traditional company-employee contract. When employees “grapple with the outside world and win,” as Welch puts it, they are essentially taking over what was previously assumed to be a corporate responsibility. Meanwhile, many companies are seeing their responsibility not in terms of ensuring long-term job security but as what Welch describes as “providing opportunities for personal and professional growth,” changing the implicit contract from a guarantee of employment to a commitment to employability. Such a change demolishes the core tenets of the strategy-structure-systems doctrine, which instructs managers to minimize risk by controlling the idiosyncratic individual. Today’s top-level managers recognize that the diversity of human skills and the unpredictability of the human spirit make possible initiative, creativity, and entrepreneurship. The most basic task of corporate leaders is to recapture those valuable human attributes by individualizing the corporation. To do so, they need to adopt a management philosophy that is based on purpose, process, and people.

Changing the Role of Top Management: Beyond Systems to People

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