Barriers to building the organisation of tomorrow - oot.org lecture series 5

Bryan Fenech – Founder and Director

Building the Organisation of Tomorrowwww.oot.org

Barriers to building the organisation of tomorrow

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Contents

Introduction

Management Frames of Reference

Management Learning Programs

Management Power

The Law of Regulatory Capture

Media Control

Elites with Too Much to Lose

Case Studies and scenarios

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INTRODUCTION

Introduction

• This topic looks at 6 barriers to change that face leaders who attempt to transform their legacy organisations into the organisations of the future– Management frames of reference– Management learning programs– Management power– The Law of regulatory capture– Media control– Elites with too much to lose

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Introduction

• Various case studies are used to demonstrate these barriers to change

• The emergence of the ubiquitous matrix structure will be looked at in focus to demonstrate the formidable challenges they present to leaders setting out to transform their organisations

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Introduction

• This topic also highlights how the organisation of the future is an emergent phenomenon

• While we can discern trends and construct potential scenarios, the future is uncertain and is dependent upon human agency

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MANAGEMENT FRAMES OF REFERENCE

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Management frames of reference

• Recent Emerging Organisational Forms Research1

– Interviews conducted with 7 CEOs (2 of whom are also Chairmen), 3 CIOs and 1 CFO

– Large organisations ranging in size up to $87B by market capitalisation and 40,000 employees

– Industry segments – Banking, Insurance, Television/Media, Commercial Property, Pharmaceuticals and Government

– Questions based on the 4 areas of organisational adaptation

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High awareness of 21st century challenges

• Interviewees demonstrated a high degree of cognizance of the strategic challenges presented by ongoing technological and socio-economic changes, particularly the strategic necessity of differentiation and innovation, nimbleness and flexibility, and building networks of strategic alliances and partnerships

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Broad consensus on capabilities and resources

• Interviewees were in strong agreement that the successful implementation of these strategic imperatives necessitates development of the types of capabilities and resources described in the literature, particularly dynamic capabilities, ambidexterity, and value co-creation

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Scepticism regarding leadership practices

• While interviewees confirmed that the development and ability to sustain these capabilities is highly dependent upon the types of leadership and governance practices described in the literature, particularly distributed leadership and participative management, they also expressed significant scepticism that much had changed in this respect across their industries highlighting gender representation at leadership level as an example

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• “We are a long way from democratisation of the workplace …”

• “I think the information age is a paradigm shift and we haven’t seen it yet.”

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• “The imperative given by the Board to the Leader will have a big impact on this …they fundamentally are not keeping up with what is happening …I mean they all hear it and they all read it, but getting it is different than hearing it …and being able to intellectualise it and discuss it is different …outside of the public view their private view is ‘that’s all horse shit’ …”

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• “Intellectually they know they need to do this …let’s take diversity in the workplace, intellectually they know they need more women on the Board but they don’t do it, they don’t actually believe it and do it …”

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Resistance to structural transformation

• Interviewees tended to resist the idea that their organisational structure needed fundamental reengineering. They did not see this as in any way a dependency for facilitation and enabling governance and leadership practices and rather placed emphasis on “mindsets” and individual responsibility to demonstrate the required behaviours

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• “What businesses, therefore, need to do is to work out … how you create an environment where you can allow that reinvention to occur. Maybe what we should be doing is buying or setting up seed businesses that are separate from our organization, that have got … you know, build about ten of them and just tell them to bugger off, and then if one of them thrives and your existing core business decays and dies, that’s okay.” (Emphasis added)

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• “I mean, there’s no excuse for it. It’s purely mindset. It’s mindset of me, it’s mindset of the system, it’s mindset of the people that work for me. It’s the fear they’ve got about their value sets being challenged the whole time, so there’s no structural impediment other than the system and the mindsets of individuals … the problem about [organisational] reinvention resides with the individual.”

Sources of management frames of reference

• Lack of alternatives and examples –over 85% of the workforce in economically developed nations is still employed in hierarchically structured organizations2

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Sources of management frames of reference

• These legacy mindsets exist in unconscious psycho-social assumptions about the way the world works and about organising human endeavour3

• Management mindsets perpetuate the standard enterprise logic even when it is commercially irrational to do so4

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Implications for business transformation leaders

• Leaders are unaware of alternatives• Alternative ways of organising have less

legitimacy in the minds of leaders• Leaders do not have skills and

experience in executing the fundamental organisational renewal required in the knowledge era

• Organisations do not have protocols for reinventing themselves

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MANAGEMENT LEARNING PROGRAMS

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Management learning programs


– Interviewees generally did not believe that management learning programs adequately support them by providing them with critical resources (theoretical frameworks and relationships) to help them better understand and manage such extensive change

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• “Management leadership programs are like 3 days out a person’s life …that’s why it could be a generational thing to have change …A few MBAs and a few Harvard courses are not going to do it …”

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• Further, like organisational priorities, they lag developments as the following interviewee statements attest:– “If anything those things tend to be behind

industry rather than in front of industry …”– “There’s very little in terms of development for

management in there …it’s likely that they will follow …and you’ll get the same old programs, frankly.”

– “The old MBAs, no … they didn’t give any guidance about how anyone so inspired would come back into an industrial organisation.”

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• There is a clear need for management learning programs to be developed that provide better resources for leaders charged with organisational renewal

• The organisations that produce such programs will need to go through their own process of renewal if they are to recognise their own legacy issues and the role of enterprise logic in sustaining these4

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MANAGEMENT AND POWER

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Limits on management power


• Interviewees identified a number of practical limitations on their power– restrictions on their mandates– a lack of relevant “organisational re-envisioning and

reinvention” protocols– risk aversion in the broader industry context, particularly

amongst large institutional shareholders and creditors such as banks and superannuation funds to anything that might potentially impact steady returns, and

– legacy business processes, systems and mindsets

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• CEOs virtually have autocratic power to implement standardisation, cost control and economies of scale, to sweat value from property, plant and machinery, to beat the competition, and to maximise shareholder return

• Written explicitly into leaders’ mandates – leaders are supported, measured and rewarded on their achievement

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• By contrast, however, knowledge economy objectives such as building social capital assets and networks of strategic alliances and partnerships, and achieving environmental sustainability and social responsibility objectives

• Leaders are rarely measured or rewarded on the achievement of such objectives to any significant degree

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• “The shareholders will revolt …if you’ve got massive shareholders, you know, some of the banks or superannuation funds or pension funds …you’re a new CEO and you want to make changes and they don’t get it, they’ll take their money. In the worlds business model today that’s a major thing for any CEO, you get up in the morning saying you want to change the organisation you probably won’t have a job in a couple of weeks”

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• Management power in modern corporations remains narrowly aligned around industrial era strategic imperatives

• It is, therefore, generally meaningless to talk about transformational leadership when management action is so tightly constrained

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• Until Boards specifically build 21st century strategic imperatives and organisational renewal into the mandates of CEOs, and put in place protocols for achieving this, it is naïve to expect that leaders will not continue to focus on short term objectives set by investors and facilitated by existing mindsets and legacy culture, business processes and systems

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THE LAW OF REGULATORY CAPTURE

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What is the law of regulatory capture?

• Regulatory capture theory is a subset of public choice economics

• George Stigler(Economist and Nobel Laureate)

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• Institutions and individuals that are subject to policy and regulatory frameworks have a higher stake interest in the outcome of policy or regulatory decisions, and are able to focus more resources and energies influencing such outcomes, than any individual member of the public7, 8

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• Due to this imbalance government policy units and regulatory authorities tend, over time, to become captured by the institutions they are intended to regulate, identifying with and advocating for their interests rather than serving the public interest

• This includes application of the coercive powers of government

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• Some researchers assert that the law of capture extends beyond political agencies to the media, academia and popular culture9

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US examples of regulatory capture

• Bureau of Ocean Energy Management, Regulation and Enforcement

• Commodity Futures Trading Commission• Environmental Protection Agency• Federal Reserve Bank of New York• Food and Drug Administration• Nuclear Regulatory Commission• “Ag-Gag” Laws10, 11

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Australian examples of regulatory capture

• Accounting Standards Review Board12

• Regulation of agribusiness13

• Carbon and climate change policy• Regulation of the mining industry• Energy policy and regulation• The Commission of Audit

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• Leadership attempts to reform industrial organisations need to be seen in this context– No regulation holds that does not suit the

regulated – industries are legally sanctioned cartels

– Attempts to change industrial era organisations through policy and regulatory frameworks will face significant challenges

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MEDIA CONTROL

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The propaganda model of the media

• The propaganda model of the media holds that the mass media distorts reporting to favour the interests of dominant corporate and government institutions

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The propaganda model of the media

• The propaganda model of the media identifies a number of “editorially distorting” lenses14

– Size, ownership, and profit orientation– The advertising license to do business– Sourcing mass media news– Flak and the enforcers

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Size, ownership and profit orientation

• The dominant mass media outlets are large firms which are run for profit

• Therefore, they must cater to the financial interest of their owners – often corporations or particular controlling investors

• Size is a necessary consequence of the capital requirements for the technology to reach a mass audience

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Advertising licence to do business

• Since the majority of the revenue of major media outlets derives from advertising (not from sales or subscriptions), advertisers have acquired a “de-facto licensing authority”

• News media must cater to the political prejudices and economic desires of their advertisers

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Source of mass media news

• “…the large bureaucracies of the powerful subsidize the mass media, and gain special access [to the news], by their contribution to reducing the media’s costs of acquiring [...] and producing, news. The large entities that provide this subsidy become 'routine' news sources and have privileged access to the gates. Non-routine sources must struggle for access, and may be ignored by the arbitrary decision of the gatekeepers.”

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Flak and enforcers

• "Flak" refers to negative responses to a media statement or program (e.g. letters, complaints, lawsuits, or legislative actions)

• Flak can be organized by powerful, private influence groups (e.g. think tanks)

• The prospect of eliciting flak can be a deterrent to the reporting of certain kinds of facts or opinions

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Implications business transformation leaders

• Leadership attempts to reform industrial organisations need to be seen in this context– Information and knowledge that challenge

the status quo are obscured– It is difficult to have an informed debate

and develop consensus around strategies that address the things that need to change

– It is difficult to implement strategies that have implications for power management

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ELITES WITH TOO MUCH TO LOSE

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Global economic power – mapping the architecture

• Mapping the architecture of global economic power has become possible with the development of data mining techniques, with 2 people making pioneering studies– James B Glattfelder15, 16

– Thomas Piketty17

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147 companies that control everything

• Glattfelder analysed 43,060 transnational corporations and share ownerships linking them– Global corporate control has a distinct bow-tie

shape, with a dominant core of 147 firms radiating out from the middle

– Each of these 147 own interlocking stakes of one another and together they control 40% of the wealth in the network – a total of 737 control 80%

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Concentration of wealth and inequality

• Piketty pioneered statistical techniques that make it possible to track the concentration of income and wealth deep into the past

• Early twentieth century for America and Britain, and late eighteenth century for France

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Concentration of wealth and inequality13

• Findings– Since 1980, a return to nineteenth-century

levels of income inequality – the Belle Epoque in Europe and the Gilded Age in America

– When the rate of return on capital greatly exceeds the rate of economic growth, “the past tends to devour the future”: society inexorably tends toward dominance by inherited wealth

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Concentration of wealth and inequality

• On a path back to “patrimonial capitalism,” in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties

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• The industrial organisational form is part of the fabric of global economic ownership through which elites maintain power

• This presents a formidable barrier to the fundamental changes anticipated for the knowledge era, which may require elites to sponsor the process of their own disempowerment

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CASE STUDIES AND SCENARIOS

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Case studies

• Matrix organisations– Challenging the best of both world’s argument

– efficiency, knowledge and continuity benefits– Adaptive versus fundamental change

• Case study of a failed organisational transformation initiative at a financial services company18

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Potential scenarios

• The potential for technology to liberate and oppress– Zuboff’s vision for a distributed capitalism– PRISM and other programs

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Visit www.oot.org

Bryan FenechFounder and Director About www.oot.org

• www.oot.org is the website of Building the Organisation of Tomorrow, a networked community and set of resources to assist leaders to meet the imperative for organisational renewal

• All institutions are under increasing pressure to adapt to 21st century technological and socio-economic forces. Successful leaders need appropriate frames of reference to manage these processes of transformation; however, such frames of reference are rare

• Find articles, presentations, book reviews, and other resources

http://www.oot.org/

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References

1. Fenech, B. (2013) ‘Emerging Organisational Forms: Leadership Frames and Power’, Proceedings of the 9th European Conference on Management, Leadership and Governance, ACPI: Reading

2. Jacques, E. (2003) ‘Ethics for Management’, Management Communications Quarterly 17(1): 136-142.

3. Dovey, K. and Fenech, B. (2007) ‘The Role of Enterpise Logic in the Failure of Organisations to Learn and Transform’, Management Learning, Vol 38, No 5, pp 573-590.

4. Zuboff, S. & Maxmin, J. (2002) The Support Economy: Why Corporations are Failing Individuals and the Next Episode of Capitalism. New York: Allen Lane.

5. Fenech, B. (2013) op cit.6. Fenech, B. (2013) op cit.7. Stigler, G. (1971) Theory of Economic Regulation, Bell Journal of

Economic Research, New York, Columbia University Press.

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References

8. Laffont, J.J. and Tirole, J. (1991) "The Politics of Government Decision Making: A Theory of Regulatory Capture", Quarterly Journal of Economics, 106(4), 1089-1127.

9. Hanson, J. D. and Yosifin, D. G. (2003) The Situation: An Introduction to the Situational Character, Critical Realism, Power Economics and Deep Capture, University of Pennsylvania Law Review, vol 152, p 129.

10. Potter, W. (2011) Green in the New Red: An Insider’s Account of a Social Movement Under Siege, City Light Books: San Fransisco.

11. Potter, W. (2014) “Revised law could turn animal activists into terrorists”, Sydney Morning Herald, 8th May 2014.

12. Walker, R. G. (1987) Australia's ASRB. A Case Study of Political Activity and Regulatory ‘Capture’, Accounting and Business Research, Volume 17(67).

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References

8. Goodfellow, J. (2013) “Regulatory Capture and the Welfare of Farm Animals in Australia”, Voiceless Animal Law Lecture Series, University of Sydney, 23 April 2013.

9. Herman, E. S. and Chomsky, N. (1988) Manufacturing Consent: The Political Economy of the Mass Media, Pantheon Books

14. http://www.ted.com/talks/james_b_glattfelder_who_controls_the_world.html

15. http://www.forbes.com/sites/bruceupbin/2011/10/22/the-147-companies-that-control-everything/

16. Piketty, T. (2014) Capital in the 21st Century, Harvard University Press: New York

17. Krugman, P. (2014) “Why We’re in a New Gilded Age”, The New York Review of Books, May.

18. Dovey, K. and Fenech, B. (2007) op cit.

http://www.ted.com/talks/james_b_glattfelder_who_controls_the_world.html



http://www.forbes.com/sites/bruceupbin/2011/10/22/the-147-companies-that-control-everything/

http://www.forbes.com/sites/bruceupbin/2011/10/22/the-147-companies-that-control-everything/