Born in the bowels of the Commentary Mine, Henri Fayol’s ‘Planning, Leadership, Organization and Control’ concept has defined management theory since the early 1900s. Collectively termed ‘PLOC,’ the strength and development of a manager are routinely measured against these four key principles, with success and failure viewed as direct consequences of how well a manager has ‘Planned,’ ‘Led,’ ‘Organised’ and ‘Controlled.’
But these attributes have been severely challenged recently due to the pandemic, suggesting that current management models are outdated. Subsequently, with an increasing threat from new entrants in every industry worldwide, traditional firms are either proactive or forced to transform. Consequently, companies born in the Internet age, such as Google, Facebook, Amazon, and Netflix, have adopted a new model fit for the digital age - one built on new management principles, vastly different from tradition.
Consider, for example, GE Appliances (GEA), which in 2016 was a traditional manufacturing firm owned by GE, demonstrating single-digit growth. However, in 2021, the company has achieved a double-digit growth rate for four years straight.
How is this possible?
To answer this question, a seven-month research study was conducted, led by Dr. Annika Steiber, Director of the Rendanheyi Silicon Valley Center, that focused on understanding the following three inquiries:
1. How senior leadership perceived their company in 2016
2. How they perceived their company in 2021
3. How they perceived the transformation of the company
The findings were fascinating and demonstrate the potential to be seminal. Here’s why.
The company ‘pivoted’ 180 degrees. In 2016, operations focused on cost efficiency and profitability, led by top-down command and control leadership that effectuated perceptions of a ‘machine.’ By way of comparison, in 2021, the company focused on growth, comprising decentralized leadership, a flat structure, and agile workstreams.
Haier’s acquisition of GEA and Chairman Zhang Ruimin’s deep conviction of the need to pivot the traditional management model and the development of RenDanHeYi to stay competitive in the IoT era, together with the appointment of Kevin Nolan as CEO in 2017, enabled GEA to initiate a true enterprise-wide transformation of the company.
The RenDanHeYi philosophy was in 2016 explained to GEA’s executives as:
“You unleash the potential of every person, and you drive down decision making to the lowest possible layer. Further, you focus on the marketplace first and align the whole business towards the users and their needs. Then you reward the people for how well they do this.”
This enabled the implementation of four simple steps.
Defining a leading goal
A leading goal is a simple, memorable, and realistic leading goal inspires and energizes the organization, suggests Steiber. It’s not a lofty purpose or a declaration to change the world. In the GEA case, it was something the team aspired but didn’t know was even possible: Be and Be recognized as the Leading appliance company in the US. After four years, the business and branding results show that the goal has been almost achieved and that the GEA team is unstoppable.
Promoting a culture (r)evolution
It’s a matter of offering the teams a new frame of reference, modeling, and promoting new behaviors, suggests Steiber. In the GEA case, they challenged the old traditions, offering the space for new practices. For example, they went from serving corporate and responding to managers’ directions and commands to a culture where the consumer is the only boss and where the only valid direction is the one received from the marketplace, represented by customers and users. GEA went from playing not to lose to playing to win. The company stopped reacting to competition and started to lead. They went from avoiding risk to promoting experimentation. As part of this change, they invited employees to become entrepreneurs.
Reinventing the organizational structure
When your user is your only boss, there’s no place for a traditional organizational chart, suggests Steiber. GEA imploded the old rigid organizational brick to create numerous autonomous microenterprises focused on serving specific categories and marketplaces.
Re-defing the reward system
Finally, the reward system is now focused on recognizing value creation for and with the users, suggests Steiber. It’s clear and transparent and follows a ‘paid by user’ philosophy in which the value exchange between the entrepreneur (employee) and the user is what really matters. Nothing else.
In Summary, to be more malleable and thus able to respond to market needs requires a level of both individual and corporate dynamism. Dynamic capability essentially relates to a firm’s ability to adapt, evolve, and remain competitively advantaged in the unpredictable and unstable VUCA world that most companies now operate. While it could be argued that adopting continuous change processes is too costly for firms, commentators such as D’Aveni et al. (2010) suggest that not doing so could lead to an organization failing, as the need to embrace uncertainty and transformation is necessary to survive. Indeed, Veliyath and D’Aveni (1996) argue that in an environment of ‘hyper-competition with many firms competing in a crowded marketplace, the key to survival is organizational agility and creating collaborations with other firms.
Furthermore, Amit and Schoemaker (1993) argue that the benefits of adopting a dynamic capability model will far outweigh the financial costs of adoption. They suggest that to allow such change to be more readily adopted, a firm must first be willing to be more change orientated, then create an organizational culture that is less hierarchical, thus offering greater localized autonomy to workers and should build effective strategic alliances with stakeholders.
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