In Part I of this series we discussed the leadership and incentives aspects of enterprise resilience. The timing turned out to be propitious — in fact the latest Nobel in Economics was in part awarded based on the work pointing out the importance and the difficulty of creating the right incentive structure. In this article we will zoom in on the leadership aspects creating a resilient enterprise: the right culture and the right enterprise architecture.
Right architecture
In my experience, the resilience of an enterprise is fundamentally rooted in its architecture, which is in turn closely tied with the concept of the right incentive structure. After all, incentivizing employees to take the right action is not very likely to have the desired effect if they are not empowered to do so. As I see it, the three core principles of right architecture are: alignment of authority with responsibility, delegation of authority to the people closest to front line, and maximizing cooperation.
If basing incentives on metrics that are out of employees' control is demoralizing, then holding them responsible for outcomes they had no power to change is even more so. It often takes only a single incident of disciplining an employee for outcomes determined by someone else in the organization to permanently ruin morale for his or her entire team. It behooves CEOs to make sure that each department and each business unit is designed to align authority with responsibility — and not just for line and middle managers, but also for responsible individual contributors.
No illustration of the delegation principle is more striking than the early successes the German army was able to achieve in WWII despite numerical and frequently material inferiority. Its Auftragstaktik doctrine was arguably its most effective weapon until the army was forced to abandon it under pressure from the top, leading to a series of disasters. Fundamentally, Auftragstaktik (literally "mission-type tactics," or Mission Command in US doctrine) means that subordinates at every level are assigned clear objectives, resources and time tables. Tactical leaders are expected to reach their objectives as they see fit, according to circumstances and their ingenuity. There is a direct application of this principle to enterprise architecture, as well as to the management approach which we will discuss in the next article. It is the managers and responsible contributors closest to the point of execution who are best positioned to see emerging problems before they are are developed fully and to take corrective action in good time. Their superiors' task is less to direct them in doing their jobs and more in clearing the way for them to act and securing the right resources when required, not forgetting of course to balance this support with accountability. Front-line people who feel that they are supported by their managers and top executives tend to be not only far happier, more productive and turn over less frequently, but also come up with more effective solutions more often than their counterparts in closely managed environments.
On the larger organizational scale, careful architecture of departments and business units to maximize cooperation and keep competition for resources from becoming destructive allows the resilient enterprise to better to focus its exec team's competitive spirits on external threats. Some conflicts can be engineered out, such as channel conflicts, but others are fuzzier in their nature. Built-in conflicts and divide-and-conquer tactics beloved of so many CEOs tend to destroy value without building anything more tangible than these CEOs' egos. This is not to say that success shouldn't be rewarded — it should, and executives who deliver the best results should get the resources to further their successes — but rewards should be measured, and methods for achieving these results shared among the exec team with collegiality. When executives are freed from competition with their peers for resources, power and access to the CEO, they become more ready to embrace and promulgate a supportive and collegial culture, as we will discuss next.
Right culture
If the art of management is about ensuring that organizations deliver on objectives, then the art of leadership is fostering a culture that makes the art of management effective. Perhaps the most difficult part of leadership is that there are so few real tools to help effect it, even if there are now emerging ways to take the temperature of the organization. Much has been written about corporate cultures: how they can be toxic or empowering, corrupting or uplifting, drive quality or slacking. A great deal of late has been written about fostering cultures of innovation and of productivity. I will not be addressing this well-trodden ground here, nor will get into the pros and cons of cult-like tribal cultures, such as those enjoyed by the likes of Apple, Palantir, or Zappos. Instead I will focus on guidelines for creating a culture of resilience.
It was probably W.E. Deming who first pointed out how corporate culture affects product quality and is in turn affected by he style of management. I will get into how his ideas are applicable for today's enterprise in the next article, but for now I can say that it the right culture that is the factor most responsible for creating enterprise resilience.
In order for aggressive delegation of authority on the Auftragstaktik principle to be made effective, the culture of taking responsibility for outcomes has to be extant. Such a culture must be fostered from the very top, by CEOs who create an environment of trust and collegiality among their immediate reports and see to it this their executives do likewise. The right corporate architecture plays a large role in making this possible — by eliminating high-stakes competition among top executives, which in turn enables them to see one another as resources rather than as rivals. Collegiality and mutual assistance can and should be incentivized for all employees, regardless of position, while empire-building and budding inter-funciton rivalries in turn severely discouraged.
Of course hiring people who exhibit the right attitude in the first place makes culture-building a great deal easier, but it is in the remit of the CEO to take the lead by avoiding playing favorites, practicing divide-and-conquer, and being as open in commutations to the enterprise as is legally permissible. It is up to the CEOs to reward team members for showing initiative, taking the lead in resolving issues, and championing and taking up new projects. It is up to the CEOs to foster openness and honesty in speaking truth to power, so that information can flow freely in both directions. It is also up to the CEOs to take responsibility for missteps, because no one will trust a leader who throws his followers under the bus.
None of this is to say that a healthy dose of competition is not a good admixture to the culture pie, but like all seasoning it must be used with a light hand. Stakes in internal competition might involve bragging rights, prizes that recipients would value out of proportion to their cost, and most importantly public appreciation from the highest levels for effort and results alike. Rewards would rarely involve promotions — lest contributors are promoted to the level of their incompetence — and almost never large raises or other stakes outside of the defined incentive plans such as might threaten to undermine collegiality.
Finally, it is important in culture-building to be sure to match the culture to the mission of the enterprise. Especially nowadays, when every business wants to be thought of as a tech company, CEOs would do well to guide their cultures in directions that build long-term shareholder value rather than simply promoting creativity or stoking their own egos.
In the next article we will get into the very controversial topic of the right management style and use of metrics and objectives.
Cross-posted to LinkedIn Pulse
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