Friday, May 16, 2008

What management bandwagons bring

Management by Objectives, Zero-based Budgeting, T Groups, Theory Y, Theory Z, Diversification, Matrix Organisation, Participative Management, Management by Walking Around, Job Enlargement, Quality Circles, Downsizing, Re-engineering, Total Quality Management, Teams, Six-sigma, ISO9000 and Empowerment.

Surely you must have been subjected to some of those? Most of them have fallen out of favour again. We call them Management Fads. But do they do anything? Well… the answer is yes, but perhaps not what you’d expect them to do, or least what they are intended to do.

Professors Barry Staw and Lisa Epstein, both from University of California in Berkeley, through careful statistical analysis, examined some of the consequences of organizations’ adopting such techniques on a variety of factors. They collected data on exactly 100 Fortune 500 companies, including their adoption of quality techniques (such as Total Quality Management), teams and empowerment, the company’s reputation (through Fortune’s “Most Admired Companies” survey), their financial performance and… of course… CEO’s compensation. This is what they found:

Firms adopting popular management techniques (such as TQM, etc.) did subsequently not perform any better than firms not adopting them. Actually, if Barry and Lisa did find an effect of any of the techniques, it was negative. Usually though the stuff didn’t do a thing at all.

Then they examined the effect of adopting such techniques on the companies’ reputation, measured through their position and ascent on Fortune Magazine’s “Most Admired Companies” list. The analysis revealed clearly that adoption of the popular management techniques significantly increased firms’ position on the “Most Admired Companies” list, irrespective of their performance… To be precise, those firms were rated as being more innovative and as having higher quality management. Apparently, the stuff doesn’t have to work, but it does enhance your reputation in the outside world.

Finally the piece-de-resistance: The influence of the adoption of popular management techniques on a CEO’s compensation package (salary and bonus).... Yep, you guessed it, and the effects were very strong: If a CEO’s firm adopted one of the popular management techniques, his compensation went up.

So what does this tell us? Well, first of all of course that many of these management fads simply don’t work. The organisation doesn’t perform better as a result of adopting any of them. Yet, apparently, it does make you look innovative and legitimate in the eyes of others. This includes fellow executives, who subsequently vote for you as being “much admired” but – hurrah! – also in the eyes of your Board; they enthusiastically pad you on the back for the great achievement and, with grace and thanks, increase the size of your compensation package.