Management at Work A Critique of Practical Leadership Defining the companys purpose is a leader and only a leader responsibility. Arkadi Kuhlmann
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Griffin, R. W. (2019). Fundamentals of Management (9th edition). Boston, MA: Cengage Learning.
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Management at Work
A Critique of Practical Leadership
“Defining the company’s purpose is a leader’s—and only a leader’s—responsibility.”
—Arkadi Kuhlmann, former CEO of ING Direct
ING Direct Canada was launched in 1997 by veteran Canadian banker Arkadi Kuhlmann as a subsidiary of ING Groep NV, a global financial-services corporation headquartered in the Netherlands. It was the first test of a new direct banking business model featuring no-frills, high-rate savings accounts that could be accessed online only. Doing away with the costs entailed by a network of branches, ING Direct depended instead on a small network of ING Direct Cafes as face-to-face contact points. The motto was “Sip, surf and save”: You could hang out over a specialty coffee and use the free Internet and Wi-Fi services, or you could get help from a bank representative to open a savings account paying 4 percent interest—at least twice as much as anything offered by Canada’s biggest banks.
Kuhlmann developed the ING Direct strategy, assembled the leadership team, and served as CEO from 1997 to 2000 (being “reelected” annually by a vote of the company’s employees). The bank broke even in just four years and was well on its way to becoming, by 2008, Canada’s largest direct bank. An initial investment of US$50 million had been turned into total assets of US$23 billion. And where was Kuhlmann by this time? In 2000, he left to launch ING Direct USA, taking his strategy, his executive team, and his ideas about leadership with him. The new bank hit breakeven after just two years, and after just six, it had become the largest online bank in the much bigger U.S. market, with $92.2 billion in assets. For Kuhlmann, the opportunity to manage ING Direct Canada provided a perfect situation in which to put his ideas about leadership into action. First and foremost, the bank was founded to launch an innovative business model and, in the process, to disrupt the savings end of the banking industry. As it happens, Kuhlmann already believed that “culture-based leadership is necessary in order to adopt innovative business strategies and to unleash the power of disruptive ideas.” He was also convinced that “culture-based leadership” had become the most promising approach to launching and operating a company in the contemporary business environment.
According to Kuhlmann, the critical factor in today’s business environment is the simple but pervasive fact of change. Nowadays, he says, the forces of competitive pressure change directions more or less constantly and with relatively little warning. As a result,
companies’ life cycles are getting shorter…. Businesses are successful and not successful over shorter lifetimes…. So the world is getting…. more short- cycled, but at the same time, we keep hoping for the silver bullet. You want that one spark in the party, that one hit in the company, that one person to stand up and grab it all, and it’s tougher than ever before.
As Kuhlmann sees it, a new company has to hit the ground running with a strategy to innovate and disrupt: If it doesn’t, it risks finding itself in a market that’s entered yet another cycle—one in which competitors are already innovating its planned innovation.
So how does a company start out—and stay—innovative and disruptive? The key, says Kuhlmann, is identifying a “cause”: “A successful company,” he argues, “must have a cause that is bigger and broader than the organization itself.” What, for example, was the “cause” that Kuhlmann identified for ING Direct? “When we started the bank in 2000,” he recalls, “it was a time when instant gratification and spending without regard for one’s ability to pay back the money had enveloped America. It was a recipe for disaster, and we believed that the right thing to do was to set off on a crusade to lead Americans back to the old-fashioned values and saving.” Having established a cause, a successful leader must ensure that it’s embodied in the company’s “vision,” which, for Kuhlmann, means what the company intends to do in order “to make a difference” and “make things better,” at least in the environment in which it does business. “An effective vision,” he maintains, “has to be one that shakes up the status quo and starts a revolution.”
All of this is not as abstract as it may seem. “When we started the company,” explains Kuhlmann, “we wanted to start with a big idea. Let’s go back to some roots and fundamental values: self-reliance, independence, having a grub stake.” At the same time, the “big idea” had to be “important and clear” to the new company’s prospective customers, and at ING Direct, says Kuhlmann, “that idea was leading Americans back to savings. We saw that there was too much spending going on. Credit cards had become the opium of consumerism. Let’s encourage people to save, we decided, and that has been our mission.” What’s the difference between vision and mission? According to Kuhlmann, “vision is aspirational, and mission is how you hold yourself accountable. Our vision was to lead Americans back to saving. Our mission was to simplify financial products.” Being accountable, then, means “walking the talk,” as Kuhlmann likes to say—in other words, delivering the actual products that will make things better for targeted customers. Thus the product strategy at ING Direct—both for designing and delivering products—focused on simplicity: “Simplifying financial products,” explains Kuhlmann,
was our tactic for helping people save their money…. Our model was…. a high-volume, low-margin business. We would target the people…. who we thought needed a better value proposition— that is, more affordable savings. We could offer significantly higher rates if we removed costs from our model. Branches are usually a huge cost…. so we didn’t have branches and could pass on the savings to our customers. All our services are provided over the telephone and the Internet. We also opened up several ING Cafes to underscore the idea that opening an account should be as easy as buying a cup of coffee.
None of this, Kuhlmann is quick to point out, is feasible without the right kind of leadership—that is, “culture-driven leadership.” A company’s leader, he argues, “must come up with the mission statement him- or herself. Defining the company’s purpose is a leader’s—and only a leader’s—responsibility…. The leader must embody the company’s cause, and that includes being responsible for defining it.” A successful leader strives to be “a person devoted to a cause [rather] than a manager running a company…. He or she must be identified with the cause.” In turn, a leader must see to it that the cause is the driving force behind the company’s culture—the set of values that helps employees understand what it wants to do and how it goes about accomplishing its goals. If a leader doesn’t take responsibility for the company’s culture, says Kuhlmann, it “gets created on its own. Or you can direct it in a certain way…. I believe you need to direct the culture—and let the culture direct the business.” Kuhlmann also thinks that directing the culture is the best way to attract and keep committed employees in an age in which career cycles, like environmental cycles, are shorter. Today, he says, “people that are successful and stay ahead are those that gravitate to a culture that is meaningful for them. They’re on a mission. It’s not a job.” Companies can no longer count on employees to perform their jobs simply out of “corporate loyalty and trust…. I think right now,” says Kuhlmann, “the only reason you would follow me—the only reason—is that I would voice the attributes of the culture in a way that you would say, ‘Yes, that’s meaningful to me. I’m connected to that.’”
1. First, review the definition and discussion of “The Organization’s Culture” in Chapter 2. Then address the following question: What effect is a company’s culture likely to have on the efforts of management to practice each of the following approaches to leadership: LPC theory, path-goal theory, the decision tree approach, and the LMX model?
2. “The way we look at leaders,” says Arkadi Kuhlmann, “has changed, and who we follow has become ever more situational.” According to one researcher, situational leadership evolved from a task-oriented versus people-oriented continuum…. representing the extent that the leader focuses on the required tasks or focuses on relations with followers…. Task-oriented leaders define roles for followers, give definite instructions, create organizational patterns, and establish formal communication channels. In contrast, relation- oriented leaders practice concern for others, attempt to reduce emotional conflicts, seek harmonious relations, and regulate equal participation.
First, use this definition of situational leadership to get a sharper focus on the discussion of the topic in the text (“Situational Approaches to Leadership”). Then explain how Kuhlmann’s concept of “culture-driven leadership” can be understood within the context of situational approaches to leadership.
3. What about you? In 2011, Kuhlmann published a book entitled Rock Then Roll: The Secrets of Culture-Driven Leadership, which gathers some ideas on management collected over more than a decade at ING Direct. “The book,” he says, “is really for a younger audience— people who are really looking around and trying to figure out how to make a difference.” He adds that a lot of younger people who join us, starting at the entry level at ING Direct, are not totally motivated by money. It’s amazing what percentage say, “Wait a minute, I’m committing time. I’m investing my time, and that means a lot to me.” They have a little different focus. If you roll back the calendar a couple of decades, it was all about, “How much money am I going to make?” There are still some people like that, but it’s amazing how many people really think about the fact that they’re investing time.
4. Kuhlmann implies a spectrum of attitudes toward work life running from “How much money am I going to make?” on the one end to “I’m investing time and that means a lot to me” on the other end. Where would you put yourself on this spectrum? Have you pretty much been at the same place for your adult life, or has your attitude shifted to some degree? In any case, explain how you currently feel about the issue that Kuhlmann raises.
Management at Work
The Law of Cheating
“Don’t go looking for the perfect performance measure. It doesn’t exist.”
—Robert D. Behn, Harvard University, Kennedy School of Government
Let’s suppose that you’re the manager of a factory that manufactures automotive bumpers. When the fourth quarter rolls around, you see that you aren’t on track to meet your quota by your year-end deadline. Failure to meet either the quota or the deadline will mean that you won’t be getting any bonus or stock options; in fact, your job might be at risk. So you decide to put off regularly scheduled maintenance and repairs for the quarter and produce bumpers at full capacity—a practice called “storming.” You meet your quota and deadline, but catching up with maintenance and repairs during the first quarter of the following year reduces your production capacity for three months. Down the line, of course, you’ll be facing yet another quota and another deadline, and in order to recoup the resulting loss in production, you’ll have to resort to “storming” once again. Obviously, it won’t be long before your operations are completely out of control. Not fair, you say: Your job is constantly on the line because the quotas and deadlines that you have to meet are too demanding. Unfortunately, as any social scientist could tell you, you are a victim of Campbell’s Law. In 1976, Donald T. Campbell, a social psychologist specializing in research methodology, came to the following conclusion: The more any quantitative social indicator is used for social decision making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes that it is intended to monitor.
In other words: Once a measurement (or metric) is specified as a key criterion for the success of a process or project, its ability to measure what it’s supposed to will almost inevitably be compromised. Why? If the stakes and the cost of failure are too high, people tend to cheat.
Campbell’s Law predicted, for example, what actually happened in Atlanta schools beginning in 2005 and culminating in 2015, when 11 former educators were convicted of racketeering charges stemming from a conspiracy to alter student test scores. The original investigation had extended to nearly 180 principals and teachers at more than 40 schools and had resulted in 35 indictments. The educators, it seems, were motivated by increasing pressure to meet official performance standards on which bonuses and even employment status depended, and adherents of Campbell’s Law argue that the episode reflects the failure of a misguided control process designed to measure student performance too narrowly. According to one report on the Atlanta episode, the dilemma fostered by high-stakes educational standards is an all-too-clear demonstration of Campbell’s original formula for control failure:
School districts are increasingly tying teacher pay to performance, and there’s no consensus on the best way to measure student proficiency, so high test scores are starting to look a lot like money. What emerges is bad news: a carrot-and-stick approach to a sector of the workforce that many consider to be underpaid.
We shouldn’t be surprised by such responses to impractical performance measures, says Robert D. Behn of Harvard University’s Kennedy School of Government:
After all, we have put significant pressure on schools and teachers to improve test scores. … When the pressure becomes personal—when a person’s job and income are on the line— some people may resort to cheating. Why do you think all of those professional baseball players used steroids?
Behn distinguishes between “honest cheating” and “dishonest cheating.” Like the tactics used by certain educators in Atlanta, “dishonest cheating is illegal, and you can go to jail for it” (the convicted principals and teachers are facing prison sentences of five to 20 years). On the other hand, such practices as “teaching to the test”—focusing one’s efforts on standardized testing to the detriment of other educational activities—are merely “honest cheating”: “There is nothing illegal about it. No one goes to jail for it. Still, it illustrates how putting pressure on schools, principals, and teachers to improve on very specific performance measures can produce the distortions about which Campbell worried.”
According to Behn and other analysts of the impulse to cheat, a common denominator in both types of “honesty” is the imposition of “very specific performance measures.” In business, such measures are often called KPIs—quantifiable metrics that show how well an organization is achieving its goals. KPIs can help an organization focus on its most effective strategies, but if they aren’t conceived or executed properly, KPIs can be misleading. Campbell himself offered the example of a city that sets a strategy to reduce crime, designating the crime rate as a KPI. If the crime rate goes down, can city officials be sure that has crime actually been reduced? Not necessarily: What if police, in order to push down the rate, had adopted new criteria for crimes that must be formally reported or systematically downgraded certain crimes to less serious classifications? When enforced by such counter-strategic employee behavior, Campbell’s Law can sabotage the best-laid plans—as you did when you gamed the process of meeting your quotas and deadlines. You were given a certain amount of discretion in the way you both achieved and reported your results, and you made your decision based on the fact that the stakes and the cost of failure were too high. Ironically, your employer also gave you incentives to make the decision that you did—literally: In addition to protecting your job, you acted to secure your bonus and stock options. According to EthicalSystems, a nonprofit that compiles research on ethical leadership, conflicts of interest, cheating, and other related issues, extensive research shows that decisions like yours “are frequently distorted by incentives.” An example, suggests James Freis Jr., an attorney specializing in financial-industry regulation, “might be a contractor who knows his bonus depends on the fulfillment of certain contracts and so may be tempted to offer a bribe to a foreign official who is responsible for signing off on a license, customs duty, or shipment.”
Freis may well have been thinking about the case of Acatel-Lucent SA, the world’s largest supplier of landline phone networks. In 2010, the company agreed to pay $137 million to settle criminal and civil charges stemming from violations of the U.S. Foreign Corrupt Practices Act. According to the Securities and Exchange Commission, “Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting that employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business.” Managers at Alcatel received the bulk of their pay in the form of stock incentives and bonuses tied to short-term profitability. The problem, suggests Harvard’s Behn, is the practice of pegging high-stakes incentives to narrow win-or-lose KPIs. As Campbell’s Law shows, cheating—including the violation of an organization’s ethics rules—will probably occur under such circumstances. “So get over it,” Behn advises organizational strategists. “Don’t go looking for the perfect performance measure. It doesn’t exist. Don’t waste countless meetings debating whose measure is without defects. All measures have them.” Instead, he suggests,
start with a good measure (or two). Not great, not perfect, just good. From the beginning, try to identify its inadequacies. Recognize what problems the measure might create; then, as you implement your performance strategy, be alert for the emergence of flaws and distortions. When suggesting, adopting, or employing a performance measure, all [managers] should be aware of— and beware of—Campbell’s Law.
1. What about you? Put yourself in the position of the Atlanta educators whose dilemma is described in the case. If there was a real possibility that you’d lose your job because your students performed badly, how would you assess your situation and your options? What if there were a real possibility that you’d lose a pay raise and promotion? How about the possibility that you’d be reassigned to a much less desirable school? Be prepared to argue either side of your case.
2. Think about a class that you’re taking now or have taken in the past. What KPI played the most important role in the instructor’s evaluation of your performance? What did it tell you about your instructor’s strategy for teaching the course? Do you think that it was too narrowly focused or otherwise unreasonable? If so, how do you think your instructor could have improved his performance-evaluation strategy?
3. Again, what about you? After having read this case, have you reconsidered your attitude toward how much control or accountability you’d like to have in a job? If, for example, you’re studying to be a teacher, how do you feel about a career goal such as moving up to principal or even multi-school administrator? How does your concept of an ideal work/life relationship affect your thinking on the subject?
4. As we saw in Chapter 10, incentives “represent special compensation opportunities that are usually tied to performance”—that is, to a certain form of workplace behavior. They can also be tied to other forms of workplace behavior—such as complying with an employer’s policies regarding legal and ethical conduct (its so-called compliance & ethics, or C&E, program). Incentives can be either “soft” (consisting of nontangible encouragement or recognition) or “hard” (typically consisting of tangible, often monetary rewards). What “C&E” incentives affect the way you conduct yourself, whether at work or at school? How do they stack up against the incentives to behave in accord with Campbell’s Law? Is there any tension between the two sets of incentives? What do you do—or can you do—to resolve any tension as you make decisions affecting your behavior?
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