FOR MORE than a decade, BP was Britain’s proudest corporate monument – a financial colossus with global reach and brand, which yet managed to be the first oil company with credible green credentials. Its CEO, Lord Browne, was the UK’s most respected businessman.
All that changed overnight with an explosion at a US oil refinery. BP wasn’t a great company, after all: in fact, it was a very bad one. Browne’s achievement likewise went up in the smoke of the accident, and he left in unfortunate circumstances. The transformation was completed last week when Tony Hayward, Browne’s successor, said in an interview that (in effect) the company was a bloated, overcomplicated mess in need of a root-and-branch makeover that would take years.
This extraordinary turnabout needs explanation. How does a company go from great to gruesome overnight? And if it wasn’t overnight, why didn’t anyone step in to stop it? Of course, the company was probably never as good as the hype made out, just as it is now not as bad. Both company and CEO were to some extent victims of a ‘halo effect’ – financial excellence imparted a rosy glow to its management processes up to the refinery accident the same processes are now made self-evidently awful by the bad news. Even so, a central question remains: why even at ‘excellent’ companies – think Marks & Spencer, IBM and Sainsbury as well as BP – does it take a crisis to provoke change? Why can’t firms adjust incrementally, avoiding the need for the trauma, job loss and all-round heartache?
The conventional answer is it’s a failure of leadership. While true, the implication drawn from it (find better leaders) is diametrically wrong. The underlying truth is that the current management model makes failure inevitable.
As management thinker Gary Hamel recently noted, ‘Few people would want to live in a planned economy, but almost all of us work in one’. Corporate dictatorships (as 99.9 per cent of companies are in the last resort) are quite good at getting people to carry out orders. The downside is that the dictator, however brilliant, is too far removed from what’s happening at ground level for the orders to be reliably timely or right: 99.9 per cent of what we call management (planning and scheduling, budgeting, market research, performance management) consists of measures to compensate for this basic connection failure, with results that can never be better than mediocre.
Companies, perversely, compound the inbuilt shortcomings of central planning by their much vaunted alignment arrangements. While CEOs boast of their alignment with shareholders, notes Hamel, this is exactly the wrong way round. It’s not shareholders who create shareholder value but customers buying products and services. Alignment should logically go the other way. This is why progressive companies put employees first (because it is they who perform the all-important contact with customers) customers second and shareholders third. ‘To be sure, shareholders have residual rights,’ says Hamel, ‘but to put those first runs the danger of mistaking the scorecard for the game.’
The real enemy of timely corporate change is therefore not poor leadership, but poor design. The corporate change dilemma is not, or shouldn’t be, about finding a superhuman leader with perfect foresight (there is no such thing) but designing an organisation that is capable of thriving without perfect leadership, harnessing instead leadership distributed around the organisation. As another guru, Warren Bennis, wisely put it: ‘None of us is as smart as all of us.’
Averting the need for palace coups and disruptive 180-degree change is in part a matter of setting up feedback loops that allow corporate ecologies to adapt automatically to changes in the environment. Former Intel CEO Andy Grove recounts how when the firm’s top brass were agonising over whether to phase out production of memory chips in favour of the newer microprocessors, he was astonished to find that salespeople dealing with customers had already anticipated the decision. With US memory prices being undercut by Japanese manufacturers, they had had no option but to switch to processors.
Another strategy, suggested by intriguing long-term research undertaken at the Advanced Institute of Management Research, may be tolerance – or even fomentation – of alternative power coalitions to the dominant one at the top, allowing for the emergence and airing of different scenarios and strategies.
The ideal changeover at the top, of course, is one that is so seamless that no one even notices. One study of the motor industry found that the only manufacturer where a change in CEO had no effect on performance was, as you will probably have guessed, Toyota. Its system is so robust and so focused on continuous improvement that appointing a charismatic individual is not only unnecessary: it would wreck it.
The Observer, 21 October 2007