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The elephant comes with risk.
There is an elephant in the C-suite. It has been there a long time, but it has blended into the background and few have questioned its legitimacy or presence. The elephant I am referring to is the goal-setting process, that is, the way that management sets the direction going forward. It is generally believed that setting one or more goals is the primary job of the CEO and other C-suite executives, but objective setting may be the riskiest thing that C-suite leadership does. Without warning, a new C-suite team with a new set of objectives can arbitrarily attempt to turn an organization in a new direction designed to unlock value, then face resistance while trying to enforce the change without internal support. This can easily destabilize the internal culture, destroying social and psychological capital in the process. The elephant has gone rogue, and the organization’s performance will likely suffer.
This may not be an isolated phenomenon. As detailed in a 2015 study by Boston Consulting Group, today’s public corporations are estimated to have a 32 percent chance of disappearing from the stock market within 5 years, compared to only an 8 percent risk in the 1950s (BCG, 2015). The study looked at 35,000 public corporations listed on the stock market between 1950 and 2010 to assess their longevity. Today’s one-in-three risk of failure during the next 5-years is relevant to the tenure of a typical CEO or the time horizon of a typical investor. The study found no safe harbors, as neither scale nor experience provided a safeguard.
How to explain what happened? The study looked at stock market exits because of bankruptcy and liquidation, merger or acquisition, or other causes. Exits from the market are often viewed in aggregate as part of the creative destruction found in a vibrant economy, but at the individual firm level, an exit is generally seen as a managerial failure, as the disappearance of a public company from a stock exchange is largely unintended. The study found that the fastest-growing and the fastest-shrinking companies were the most vulnerable. Whether a company is growing fast or shrinking fast, the company’s goals are likely to need reassessment.
The message of today’s episode is that the C-suite management team should not set the organization’s goals because the overriding goal of every organization is now the same. I will come to why that is true in a moment, but if the C-suite no longer needs to set goals, a major source of instability and risk is eliminated. In addition, the practice of management is greatly simplified, resulting in organizations that are naturally aligned with, and effective within, their respective environments.
Given a viable concept of effectiveness, the elephant is redundant.
But, let’s back up a bit. A few years ago, I began a search for the holy grail of organizational thought, that is, a satisfactory way to describe and verify an organization’s effectiveness. A rigorous way to think about organizational effectiveness had never been found, yet it was acknowledged to be “at the very center” of existing organizational models. In theory, a satisfactory concept of effectiveness would offer internal consistency, universal applicability, a parsimonious nature, and an objective referent that could be observed in the real world to verify effectiveness. Since effectiveness is viewed as the highest level of organizational performance, an agreed concept of organizational effectiveness would be the capstone of organizational theory, bringing everything else together. If effectiveness could be verified in the field through direct observation, then logically, the goal of every organization would be to maximize effectiveness. In addition, empirical evidence from the field could provide immediate feedback on performance at the highest level to inform management actions.
Scholars searched for such a model in the 1960s, 1970s, and early 1980s, yet the various conceptualizations that were developed rarely overlapped, and no consensus could be found on exactly what amounted to effectiveness. Scholars came to believe that organizational effectiveness was an enigma, with characteristics of a wicked problem, thus it has remained a vague construct rather than a defined concept in organization and management theory. The search was largely abandoned in the mid-1980’s as the scholarly literature reflected a widespread belief that a workable concept of effectiveness would never be found. Without a concept of effectiveness, workarounds continued to be in use.
Today, by default the model most often used for effectiveness is the goal model – in which an organization is deemed to be effective when it achieves the goals that it has set for itself. There are few organizations that do not use this model in some way. The problem is that the goal model will accept virtually any goal that the C-suite wants to introduce, and, in the end, it is hard to know if a viable goal has been selected until considerable time has passed (because feedback may not be immediate). Management by objectives, first popularized by Peter Drucker in 1954, is derived from the goal model. Today’s computer-based scorecards, dashboards, and indicator monitoring systems that organizations have adopted widely, take the idea to the next level. It’s the goal model on steroids, where the organization’s goal is cascaded down to subordinate levels through an objective setting process; but the goal model does not reliably improve effectiveness.
If the C-suite sets its own goals and is rewarded for achieving them, much can go wrong. In 1974, Peter Drucker wrote in response to a rash of reorganizations in large American organizations, “the main causes of instability are changes in the objective task, in the kind of business and institution to be organized. This is at the root of the crisis of organization practice” (Drucker, 1974). Goal setting is fraught with risk because it is not a benign over-the-counter remedy. Rather, it is a prescription-strength medicine that must be administered according to a strict protocol. A new organizational goal represents a pivotal change in direction that may prove unsuccessful, burning resources and jeopardizing the organization’s future. It doesn’t have to be that way.
Has a viable concept of effectiveness been found?
The holy grail of organizational thought may have been found. I believe that a workable concept of organizational effectiveness (OE) is now available. It is described in my 2017 book (Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness). This concept of effectiveness is built around a new model, called the outcome-focused model (OFM). In the model, an outcome is not an end result but is an effect caused by an antecedent, confirming that the supply-side push from an organization’s offerings has been successfully converted to a demand-side pull by actors within its environment. In the end, organizational effectiveness is about converting the organization’s supply-side intentions into the relevant demand-side behaviors of uptake, adoption or use (within defined results chains).
The outcome-focused model is expected to be useful in determining the effectiveness of an organization as a whole, its component parts, or externally-focused projects and programs of an organization (or groups of organizations). Indications are that it is applicable to organizations of all types (business, government, or nonprofit), large or small, without known constraints.
The goal of an organization is to be effective within its environment.
The overriding goal of an organization can be derived from first principles. To survive and thrive, we know that an organization must exchange benefits with its environment. The purpose of an organization is not only to do something for itself, but to create, amplify, and channel benefits in society so that the organization can receive benefits due to it in return. In the new model, the goal of every organization is the same – to be effective within its environment. This means that the organization serves its environment and is rewarded in return while striving to improve the whole. The organization is encouraged to produce offerings that actors in the environment want, whether customers or non-customers, instead of things that the C-suite wants. Effectiveness is observed at the supply/demand interface as the organization’s offerings induce relevant demand-side responses involving uptake, adoption or use. If we confirm that the expected behavioral responses are strong, we have evidence of effectiveness, and it can be documented empirically at any time through direct observation (and measurement, where required).
The benefits that are being exchanged at the boundary between the organization and its environment can take several forms. They may be financial and economic benefits when an actor within the environment acquires and uses an offering over time. But there are likely other benefits for those same actors, such as social and psychological benefits, and higher-level benefits such as environmental or spiritual benefits. In the outcome-focused model, the organization becomes effective by experimenting with, and then successfully managing, benefit exchanges at the supply/demand interface. Workers are free to ask anew each day, “how can I serve my environment well now?”
The traditional style of management (i.e., top-down, command & control) doesn’t work well in today’s environment. If we need fresh evidence that management is broken, we can look at the 2017 numbers on worker engagement from Gallup. Only 21% of employees strongly agree that they are managed in a way that motivates them to do outstanding work. Overall, only 33% of US workers report that they are actively engaged in their work. I believe the reason can be traced to this top-down form of management where the C-suite sets the objectives and the employees are exhorted to achieve them. Over time, this approach kills the intrinsic enthusiasm of the workers, because it doesn’t provide enough freedom for them to innovate and do their best work. Today, C-suite teams that continue to drive their organizations toward goals focused on profit or shareholder value have set directions that are problematic, constraining, and fraught with risk. In other words, the elephant is still living in the C-suite (…and I will leave it there for today).
Limited time offer for listeners:
Let me remind you that my 2017 book (Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness) is now out in a 2018 Audible audiobook edition. I have a few free downloads that I can provide listeners of this podcast. (You might want to get a piece of paper and a pen to write this down). If you prefer to consume your content in the Audible format rather than the soft-cover or hard-cover editions or the Kindle e-book edition, I will give you a website address where there is a free download offer. Are you ready? Simply go to “www.ageofOE.com/offer” and follow the directions found there. I will send a coupon for a free download to the first 10 listeners who respond. That’s all for now.
Charles G. Chandler, Ph.D.
References:
Chandler, Charles G. 2017. Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness. Powell, OH: Author Academy Elite.
Gallup 2017. “State of the American Workplace.”
Reeves, M. & Pueschel, L. 2015. “Die another day: What leaders can do about the shrinking life expectancy of corporations.” Boston Consulting Group.