Under New Management: How Leading Organizations Are Upending Business as Usual Read online

  Contents

  * * *

  Title Page

  Contents

  Copyright

  Dedication

  Introduction: Management Needs New Management

  Outlaw Email

  Put Customers Second

  Lose the Standard Vacation Policy

  Pay People to Quit

  Make Salaries Transparent

  Ban Noncompetes

  Ditch Performance Appraisals

  Hire as a Team

  Write the Org Chart in Pencil

  Close Open Offices

  Take Sabbaticals

  Fire the Managers

  Celebrate Departures

  Afterword: Reinventing the Management Engine

  Next Steps

  Acknowledgments

  Notes

  Index

  About the Author

  Copyright © 2016 by David Burkus

  All rights reserved

  For information about permission to reproduce selections from this book, write to [email protected] or to Permissions, Houghton Mifflin Harcourt Publishing Company, 3 Park Avenue, 19th Floor, New York, New York 10016.

  www.hmhco.com

  The Library of Congress has cataloged the print edition as follows:

  Names: Burkus, David, (date) author.

  Title: Under new management : how leading organizations are upending business as usual / David Burkus.

  Description: Boston : Houghton Mifflin Harcourt, 2016. Includes bibliographical references and index.

  Identifiers: LCCN 2015037017 | ISBN 9780544630970 (hardcover) ISBN 9780544631601 (ebook) | ISBN 9780544842151 (pbk. (international edition))

  Subjects: LCSH: Management—Case studies. | Management—Employee participation—Case studies.

  Classification: LCC HD31.2 .B87 2016 | DDC 658—dc23

  LC record available at http://lccn.loc.gov/2015037017

  Cover design by David Drummond

  v1.0316

  To Lincoln and Harrison

  Introduction:

  Management Needs New Management

  In 1898 the Bethlehem Iron Company was in trouble. The company was facing increased competition and losing ground quickly. Besides its misnomer company name (they actually produced steel), its share of the market as a supplier to the railroad industry was rapidly being grabbed by a growing number of Pittsburgh-based firms, including the Carnegie Steel Company.

  To try to turn their fortunes around, Bethlehem Iron’s leaders hired a middle-aged intellectual with an interesting past. He had studied at the renowned preparatory school Phillips Exeter Academy, with the intention of continuing his education at Harvard. But after passing the Harvard entrance exam with honors, he decided against attending. Instead, in a somewhat stunning move, he became a machinist and worked his way up the factory floor to become foreman. He studied mechanical engineering by night while he continued to work as both a laborer and a foreman by day. By 1898, having begun to merge his intellectual knowledge with his laborer’s experience, he decided to become a consultant.

  His name was Frederick Winslow Taylor.

  Taylor brought to Bethlehem Iron a new set of tools for maximizing the efficiency of the steelworks. His method was to systematically study every task in the system of production, then eliminate unnecessary tasks and train laborers in the detailed and specific way to execute each task. After perfecting the system and the tasks, Taylor sought to perfect the laborers themselves by removing hourly wages and assigning a specific pay rate to the segment of work for which they were personally responsible.

  This “piece-rate” system was seen as a way to increase the speed of production and decrease loafing among workers. Taylor himself would repeat that there was not a single manual laborer “who does not devote a considerable part of his time to studying just how slowly he can work and still convince his employer that he is going at a good pace.”1 It was Taylor’s role as a consultant to study what that good pace actually was.

  Taylor would also study the tools of production. In one instance, he famously asserted that the most effective load a worker should carry in a shovel was 21.5 pounds, but that workers often used the same shovel regardless of the material being loaded (and hence the weight often varied in the load they were actually carrying). Taylor found or designed new shovels for each material that would scoop exactly 21.5 pounds. Taylor viewed the discovery of such specific levels of efficiency as out of the intellectual reach of the common laborer; the ideal worker, in his mind, was simply an unskilled cog in the larger machine, trained to do just one task and rewarded when he performed that task optimally. Taylor asserted that “it is only through enforced standardization of methods, enforced adoption of the best implements and working conditions, and enforced cooperation that this faster work can be assured. And the duty of enforcing the adoption of standards and enforcing this cooperation rests with the management alone.”2 In short, Taylor didn’t need the minds of laborers; he only needed their bodies.

  Not surprisingly, his ideas weren’t easily accepted by the laborers themselves. Taylor’s rigid methods had indeed increased production, but those changes also caused strife among laborers and managers who were used to the way they had been working. By 1901 Taylor was forced to leave Bethlehem Iron after disputes with other managers. But he didn’t walk away from his principles of “scientific management.” Instead, he began spreading his ideas as far as he could, and he would eventually see them readily adopted.

  Taylor’s concept of scientific management came at exactly the right time. Just before the turn of the nineteenth century, there had rarely been a need for smart managers to supervise large groups of unskilled laborers. In 1790, 90 percent of the working population in the United States lived on farms, producing food for themselves but also items like clothing, furniture, soap, and candles.3 What little commercial manufacturing existed was done by skilled artisans who worked in small shops that often doubled as their homes.

  The industrial revolution changed all of that. As new machines were invented and ways to power those machines were discovered, the speed of production for various tasks quickened. Between 1890, just before Taylor began working with Bethlehem Iron, and 1958, manufacturing output per labor-hour in the United States grew almost fivefold (and it has kept growing rapidly ever since).4 Products that used to be created by lone artisans were now mass-produced in large factories. Those factories needed employees. Those employees needed managers. Those managers needed tools.

  Frederick Winslow Taylor provided the tools to manage the people in those factories. His ideas dramatically increased the speed and efficiency of production and helped companies grow. There are even those who say that the amazing economic growth of the twentieth century stems largely from Taylor’s management ideas and the ideas they inspired. As the majority of the population moved from farm work to factory work, the style of management that fueled that growth became the unquestioned standard—the universal toolbox. Over time, others would build on Taylor’s work and add more tools that built off his ideas (or sometimes were positioned as replacements for Taylor’s ideas), thus becoming part of the toolbox used to manage large-scale industrial firms. Even the most drastic departures from Taylor’s ideas were still tools to be used by the managers and leaders of large-scale, largely industrial firms.

  Taylor’s public lectures were eventually published as books. The most popular, Principles of Scientific Management, was published in 1911, and sales quickly took off around the country and the world, even as far
as Japan.5 (When Taylor’s grandson visited Japan, he reported that managers of many companies insisted on taking their picture with him.) Taylor inspired a group of efficiency-minded managers who started a monthly magazine called System, which featured articles on maximizing the efficiency of all aspects of work.6 System would grow in popularity and eventually take the new title of Businessweek.

  Universities started business schools to train managers and future managers on how to use the tools of scientific management to maximize production and minimize costs. Taylor even joined one, becoming a professor at the Tuck School of Business at prestigious Dartmouth College.7 Companies began to “benchmark” their practices by comparing their use of these tools to how the industry leaders were using them. Amazingly, many of these basic management tools are still taught at business schools and benchmarked by managers. After all, these tools got us to where we are today.

  But the truth is, where we are today looks a whole lot different than where we were when Frederick Winslow Taylor first stepped onto the factory floor at Bethlehem Iron in the 1800s.

  Throughout the latter part of the twentieth century, the nature of work changed dramatically for a lot of people. Instead of manual labor (performing routine tasks in the service of mass-producing a product), organizations increasingly needed their workforce to engage in mental labor—making decisions about redesigning products or about marketing them, or designing information technology systems, or finding new sources of capital. The volume of mental labor—or “knowledge work,” as it would become known—has continued to grow. But for a very long time now, management has held on to the tools of the past—like a factory worker using the same shovel regardless of the material being shoveled.

  It became obvious as early as the 1950s that the tools of “Taylorism” weren’t going to work in the new world of work. William Whyte, a reporter for Fortune magazine, published a scathing critique in 1956 under the title The Organization Man.8 In Whyte’s view, the corporate structure and management tools developed under Taylor for application to factory workers was totally smothering the individual initiative and creativity of knowledge workers. Just as Taylor had done on the assembly line, management still demanded uniformity and conformity. As a result, both companies and society generally were suffering from “groupthink”—a term that Whyte coined but that Irving Janus would popularize as the tragedy of conformity destroying creativity and hindering decision-making.9 Although readers found Whyte’s observations compelling and managers sympathized with the poor souls depicted in his book, not much changed. After all, they didn’t have the tools for making changes.

  “As a society, we’ve had hundreds of years to work on managing industrial firms,” says Reed Hastings, the serially disruptive founder of Netflix. “We’re just beginning to learn how to run creative firms, which is quite different.”10 Hastings isn’t the only leader to recognize that traditional management tools were designed for systems that rarely exist in the contemporary economy. Researchers in human behavior and organizations have long known about the gap between what science tells us about the optimal ways to lead and manage people and what best practices dictate. “We are prisoners of a traditional way of working that we inherited from the industrial era,” says Julian Birkinshaw, a professor of strategy and entrepreneurship at London Business School. “We need to ask ourselves whether we can find better ways of working for the future.”11

  Fortunately, we can.

  Finding a Better Way to Manage

  There’s no question that the ideas presented in this book will raise eyebrows. Most of them are new, radical, and even revolutionary. And you are certainly welcome to dismiss them as too outrageous to ever work.

  But here’s the catch. As you’ll see in each chapter, these “radical” concepts are already in place in a number of well-established and forward-thinking corporations, and the truth is that not only are they working, but the organizations using them are thriving.

  The purpose of this book is to challenge you and your company to ask whether the time has come for you to reexamine some of the most fundamental concepts in management today. Remember, the business of business is all about change and keeping up with the latest trends. Here’s your chance to see for yourself what kinds of management changes you should be considering.

  Corporate leaders, entrepreneurs, and organizational psychologists have been working to build a new set of tools—the new kind of management that managers need. They are challenging assumptions, questioning traditions, and abandoning so-called best practices. Although not every attempt at something new has worked, many new ideas are starting to show promise, and the redesigned management tools presented in this book may be among the most promising. They may seem odd, but they are effective. And decades of research in human psychology reveal why: they work because they are different and better. Indeed, their differentness strengthens the case that we need reinvention.

  For starters, chapter 1 takes aim at one of the biggest barriers to productivity: email. Although email can make people feel more productive, corporate leaders across the globe are discovering that banning or limiting access to email makes their staffs more, not less, productive. Their experiences are matched by recent research findings that, contrary to popular belief, email actually hurts more than it helps.

  Chapter 2 examines an equally radical move instigated by a global group of leaders: to best service their customers, some leaders now put their customers’ needs second and their employees’ needs first. They have inverted the traditional rule that the customer always comes first and aligned their practice instead with a well-researched model of achieving customer satisfaction through employee happiness.

  Chapter 3 investigates the traditional vacation policy. In the industrial era, managers needed to limit employee vacations so that they would always have enough people around to run the factory. But as industrial work gave way to knowledge work, many leaders questioned whether such limits on vacation were necessary. Sounds revolutionary, to be sure, but wait and see how some new vacation policies are working out.

  Chapter 4 reveals how the practice of helping employees quit (literally paying them a quitting bonus), though counterintuitive, is actually worthwhile. Companies such as Zappos and Amazon have made this practice popular. But even before Zappos and Amazon, researchers were examining phenomena like sunk costs and confirmation bias to show why quitting bonuses work, regardless of whether or not employees take the money.

  Chapter 5 asks whether how much employees are paid should be public knowledge. While sharing salaries might raise privacy concerns, keeping them secret might be hurting employees even more. Research suggests that payroll secrecy lowers overall employee salaries and generates more strife and distress in the workplace than payroll transparency. After learning this lesson the hard way, leaders at companies like Whole Foods Market and SumAll opened up their payrolls for all company employees to examine.

  Chapter 6 examines another area where traditional corporate secrecy often seems valuable but may actually be costly to the firm: forcing employees to sign a noncompete clause in the employment contract. New evidence from a variety of fields suggests that this long-held practice hurts not only departing employees but also those who stay with the company, and even the company itself. Read the chapter and then make up your own mind regarding the usefulness of noncompetes.

  Chapter 7 argues for striking down another traditional practice that might actually be doing more harm than good. Performance appraisals have long been assumed to be of vital importance to a manager’s job. But more and more companies have found that rigid performance management structures actually prevent employees from improving their performance. For example, well-known companies like Microsoft, Adobe Systems, and Motorola have all abandoned the traditional annual performance review and built more evidence-based systems that improve both employee and company performance.

  Chapter 8 describes how companies are reorganizing and revolutionizing the hiring process. In
most firms, managers hire by screening résumés and conducting a few interviews with individual candidates. But in practice, most managers find that a significant percentage of new employees don’t perform as well as they interview. In response, many leaders have found that the best practice is to turn the hiring decision over to the entire team with whom the candidate would be working. Using the wisdom of the collective, the team members can better figure out whether the new hire will fit in with them.

  Chapter 9 rethinks another widely held “best” practice—the so-called organizational chart. While constructing rigid hierarchies of employees and outlining them in a fixed structure may have worked in older industries like railroads, the ever-changing nature of work today demands an org chart that can handle those changes quickly. These days the best leaders write their organizational chart in pencil, allowing the best teams to be fluid—no matter what “divisions” they would traditionally be assigned to—and to form around problems and products. Moreover, new evidence suggests that we work best in teams that change often.

  Chapter 10 reconsiders the environment in which teams work. Managers often explain the recent trend toward open offices as necessary to inspire collaboration, but the latest research and experience have shown that any benefits of open office design for collaboration are typically offset by myriad distractions. Your workplace does affect how you work, and the best leaders are bringing a different answer to the open versus closed office debate.

  Chapter 11 investigates another different answer, this time to the question of burnout. It turns out that the best leaders find ways to give themselves and their employees long-term breaks, or sabbaticals. They have found that the best way to stay productive all of the time is to spend a good portion of time being deliberately unproductive. The findings of researchers (many of whom have themselves taken sabbaticals through their universities) back up the experience of these leaders.