In the last 20 years, manufacturing industry has transformed product quality by decentralizing control over quality and giving the people close to the action the information and authority to make immediate decisions. Quality has improved, costs and down and job satisfaction is higher.
Over the same period, management control has become more centralized. In our survey of 1,200 managers in major multinationals 34% of managers thought their company already had too much central control and 43% felt they were moving to greater central control.
In the financial services industry we are about to see a massive increase in regulation as a result of government bail-outs. Empowerment is great in practice but if it means bankrupting the business or even the whole economy, then maybe central control is better?
So how do we create the autonomy and creativity we need to be successful and to retain great people in this tightly regulated environment?
In our work training over 50,000 people in more than 300 major multinationals around the world we have learned some simple principles for the effective exercise of control
1. Central control is an illusion.
At best, central control leads to delay whilst issues are escalated. In reality, by the time central control mechanisms find out about a problem, it is often many days or weeks after the activity took place. Many financial reports for example arrive 6 weeks or more after the money has been spent.
The only type of control that really works is control that is fast and close to the action. Catching their failure some time later does not really help.
2. Formal controls undermine a sense of responsibility
Rules and guidelines may have positive motivations but they breed an attitude of compliance without thought. Sarbanes Oxley cost a fortune but all that spending on compliance did not prevent recent excesses. So long as we follow the rules, we don’t have to consider what is right. A rule oriented culture can also encourage the belief that finding a way around the rule makes it OK
3. Rules are a fossil record of bad practice.
Typically organizations or regulators only develop rules when something has gone wrong (or they fear it will go wrong). Financial regulation is often designed to stop a recurrence of incompetence or dishonesty. As a result, we have to apply these rules to the vast majority of responsible employees as if they were incompetent or dishonest.
Rules are like a fossil record of the fears and failings of a company or an industry – and then we use them to run our companies by in the future!
4. Regulations get “gold plated” by nervous managers
Many companies take a regulatory regime and “gold plate” it, adding internal checks and systems to ensure compliance in a way that is usually more restrictive than the intention of the regulation.
Challenge your own internal regulation to make sure that you are not unnecessarily tightening the regulatory regime and strangling initiative in your business.
How do we break out of the control trap?
When I managed a manufacturing organization, I experienced a lot of escalation of issues. My managers regularly called me with questions in the evenings and weekends. At the time, I was learning Japanese quality control techniques which were focused on equipping line operators with the skills to exercise immediate control over the quality of their work and we were seeing fantastic improvements in productivity and quality.
I came to see these escalation calls as a signal that I had not given my managers the knowledge, skills or confidence to make decisions for themselves. Escalation is a failure of capability.
I made a note of all escalations I received and analysed them to understand what I needed to do to equip my managers to make the decision themselves next time. Next, I organized training or provided information to fill the gap in capability. Once I had provided the training, I would respond to escalation calls with coaching and support but would encourage people to find their own answers. Within 8 months, I had restricted escalation to only issues I wanted to know about.
So here is my simple 4 step approach to continuously building capability fast and close to the action.
- At all levels of your organization get people to capture any issues that are escalated to them from the level below.
- Analyse these as evidence of a capability gap at the level below.
- Implement knowledge or skill training to fill the gap.
- Use coaching to reinforce the learning – but don’t give the answer yourself if they should already know.
The key principle is to equip people at the lowest level possible with the knowledge and the capability to control their own work. Immediate local control is real control. The rest may satisfy regulation but is largely a delayed checking mechanism. (Contact us to find out how you can use this approach in your organization.)
If we want real control in our organizations, coupled with the ability to have the empowered and creative people we need to be successful and competitive, then we need to focus more on capability and confidence, and less on rules and regulations. It is going to be difficult to find this balance in the fiancial services industry over the next couple of years – unless it turns out that regulators and politicians know best!
Kevan Hall Is CEO of Global Integration and author of Speed Lead® faster, simpler ways to manage people projects and teams in complex companies.