Barriers to building the organisation of tomorrow - oot.org lecture series 5

Bryan Fenech – Founder and Director
Building the Organisation of Tomorrow
www.oot.org
Barriers to building the
organisation of tomorrow

Contents
Introduction
Management Frames of Reference
Management Learning Programs
Management Power
The Law of Regulatory Capture
Media Control
Elites with Too Much to Lose
Case Studies and scenarios
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INTRODUCTION
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Introduction
• This topic looks at 6 barriers to change
that face leaders who attempt to
transform their legacy organisations into
the organisations of the future
– Management frames of reference
– Management learning programs
– Management power
– The Law of regulatory capture
– Media control
– Elites with too much to lose
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Introduction
• Various case studies are used to
demonstrate these barriers to change
• The emergence of the ubiquitous matrix
structure will be looked at in focus to
demonstrate the formidable challenges
they present to leaders setting out to
transform their organisations
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Introduction
• This topic also highlights how the
organisation of the future is an emergent
phenomenon
• While we can discern trends and
construct potential scenarios, the future is
uncertain and is dependent upon human
agency
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MANAGEMENT FRAMES OF
REFERENCE
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Management frames of
reference
• Recent Emerging Organisational Forms
Research1
– Interviews conducted with 7 CEOs (2 of whom
are also Chairmen), 3 CIOs and 1 CFO
– Large organisations ranging in size up to $87B by
market capitalisation and 40,000 employees
– Industry segments – Banking, Insurance,
Television/Media, Commercial Property,
Pharmaceuticals and Government
– Questions based on the 4 areas of organisational
adaptation
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High awareness of 21st
century challenges
• Interviewees demonstrated a high
degree of cognizance of the strategic
challenges presented by ongoing
technological and socio-economic
changes, particularly the strategic
necessity of differentiation and
innovation, nimbleness and flexibility, and
building networks of strategic alliances
and partnerships
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Broad consensus on
capabilities and resources
• Interviewees were in strong agreement
that the successful implementation of
these strategic imperatives
necessitates development of the types
of capabilities and resources
described in the literature, particularly
dynamic capabilities, ambidexterity,
and value co-creation
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Scepticism regarding
leadership practices
• While interviewees confirmed that the
development and ability to sustain these
capabilities is highly dependent upon the
types of leadership and governance
practices described in the literature,
particularly distributed leadership and
participative management, they also
expressed significant scepticism that
much had changed in this respect across
their industries highlighting gender
representation at leadership level as an
example
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• “We are a long way from
democratisation of the workplace …”
• “I think the information age is a paradigm
shift and we haven’t seen it yet.”
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• “The imperative given by the Board to
the Leader will have a big impact on this
…they fundamentally are not keeping up
with what is happening …I mean they all
hear it and they all read it, but getting it is
different than hearing it …and being able
to intellectualise it and discuss it is
different …outside of the public view their
private view is ‘that’s all horse shit’ …”
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• “Intellectually they know they need to do
this …let’s take diversity in the workplace,
intellectually they know they need more
women on the Board but they don’t do it,
they don’t actually believe it and do it
…”
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Resistance to structural
transformation
• Interviewees tended to resist the idea
that their organisational structure needed
fundamental reengineering. They did not
see this as in any way a dependency for
facilitation and enabling governance
and leadership practices and rather
placed emphasis on “mindsets” and
individual responsibility to demonstrate
the required behaviours
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transformation
• “What businesses, therefore, need to do is
to work out … how you create an
environment where you can allow that
reinvention to occur. Maybe what we
should be doing is buying or setting up
seed businesses that are separate from
our organization, that have got … you
know, build about ten of them and just
tell them to bugger off, and then if one of
them thrives and your existing core
business decays and dies, that’s okay.”
(Emphasis added)
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transformation
• “I mean, there’s no excuse for it. It’s
purely mindset. It’s mindset of me, it’s
mindset of the system, it’s mindset of the
people that work for me. It’s the fear
they’ve got about their value sets being
challenged the whole time, so there’s no
structural impediment other than the
system and the mindsets of individuals …
the problem about [organisational]
reinvention resides with the individual.”
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Sources of management
frames of reference
• Lack of alternatives and examples –
over 85% of the workforce in
economically developed nations is still
employed in hierarchically structured
organizations2
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Sources of management
frames of reference
• These legacy mindsets exist in
unconscious psycho-social
assumptions about the way the world
works and about organising human
endeavour3
• Management mindsets perpetuate
the standard enterprise logic even
when it is commercially irrational to do
so4
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Implications for business
transformation leaders
• Leaders are unaware of alternatives
• Alternative ways of organising have less
legitimacy in the minds of leaders
• Leaders do not have skills and
experience in executing the fundamental
organisational renewal required in the
knowledge era
• Organisations do not have protocols for
reinventing themselves
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MANAGEMENT LEARNING
PROGRAMS
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Management learning
programs
Research5
– Interviewees generally did not believe that
management learning programs adequately
support them by providing them with critical
resources (theoretical frameworks and
relationships) to help them better understand
and manage such extensive change
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Management learning
programs
• “Management leadership programs are
like 3 days out a person’s life …that’s why
it could be a generational thing to have
change …A few MBAs and a few
Harvard courses are not going to do it …”
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Management learning
programs
• Further, like organisational priorities, they
lag developments as the following
interviewee statements attest:
– “If anything those things tend to be behind
industry rather than in front of industry …”
– “There’s very little in terms of development for
management in there …it’s likely that they will
follow …and you’ll get the same old programs,
frankly.”
– “The old MBAs, no … they didn’t give any
guidance about how anyone so inspired would
come back into an industrial organisation.”
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• There is a clear need for management
learning programs to be developed that
provide better resources for leaders
charged with organisational renewal
• The organisations that produce such
programs will need to go through their
own process of renewal if they are to
recognise their own legacy issues and the
role of enterprise logic in sustaining these4
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MANAGEMENT AND POWER
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Limits on management
power
Research6
• Interviewees identified a number of practical
limitations on their power
– restrictions on their mandates
– a lack of relevant “organisational re-envisioning and
reinvention” protocols
– risk aversion in the broader industry context,
particularly amongst large institutional shareholders
and creditors such as banks and superannuation
funds to anything that might potentially impact
steady returns, and
– legacy business processes, systems and mindsets
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power
• CEOs virtually have autocratic power to
implement standardisation, cost control
and economies of scale, to sweat value
from property, plant and machinery, to
beat the competition, and to maximise
shareholder return
• Written explicitly into leaders’ mandates –
leaders are supported, measured and
rewarded on their achievement
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power
• By contrast, however, knowledge
economy objectives such as building
social capital assets and networks of
strategic alliances and partnerships, and
achieving environmental sustainability
and social responsibility objectives
• Leaders are rarely measured or rewarded
on the achievement of such objectives to
any significant degree
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power
• “The shareholders will revolt …if you’ve
got massive shareholders, you know,
some of the banks or superannuation
funds or pension funds …you’re a new
CEO and you want to make changes
and they don’t get it, they’ll take their
money. In the worlds business model
today that’s a major thing for any CEO,
you get up in the morning saying you
want to change the organisation you
probably won’t have a job in a couple of
weeks”
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• Management power in modern
corporations remains narrowly aligned
around industrial era strategic
imperatives
• It is, therefore, generally meaningless to
talk about transformational leadership
when management action is so tightly
constrained
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• Until Boards specifically build 21st century
strategic imperatives and organisational
renewal into the mandates of CEOs, and
put in place protocols for achieving this, it
is naïve to expect that leaders will not
continue to focus on short term
objectives set by investors and facilitated
by existing mindsets and legacy culture,
business processes and systems
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THE LAW OF REGULATORY
CAPTURE
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What is the law of
regulatory capture?
• Regulatory capture theory is a subset
of public choice economics
• George Stigler(Economist and Nobel
Laureate)
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What is the law of
regulatory capture?
• Institutions and individuals that are
subject to policy and regulatory
frameworks have a higher stake interest
in the outcome of policy or regulatory
decisions, and are able to focus more
resources and energies influencing such
outcomes, than any individual member
of the public7, 8
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What is the law of
regulatory capture?
• Due to this imbalance government policy
units and regulatory authorities tend, over
time, to become captured by the
institutions they are intended to regulate,
identifying with and advocating for their
interests rather than serving the public
interest
• This includes application of the coercive
powers of government
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What is the law of
regulatory capture?
• Some researchers assert that the law
of capture extends beyond political
agencies to the media, academia
and popular culture9
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US examples of regulatory
capture
• Bureau of Ocean Energy Management,
Regulation and Enforcement
• Commodity Futures Trading Commission
• Environmental Protection Agency
• Federal Reserve Bank of New York
• Food and Drug Administration
• Nuclear Regulatory Commission
• “Ag-Gag” Laws10, 11
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Australian examples of
regulatory capture
• Accounting Standards Review Board12
• Regulation of agribusiness13
• Carbon and climate change policy
• Regulation of the mining industry
• Energy policy and regulation
• The Commission of Audit
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• Leadership attempts to reform industrial
organisations need to be seen in this
context
– No regulation holds that does not suit the
regulated – industries are legally sanctioned
cartels
– Attempts to change industrial era organisations
through policy and regulatory frameworks will
face significant challenges
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MEDIA CONTROL
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The propaganda model
of the media
• The propaganda model of the media
holds that the mass media distorts
reporting to favour the interests of
dominant corporate and government
institutions
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The propaganda model
of the media
• The propaganda model of the media
identifies a number of “editorially
distorting” lenses14
– Size, ownership, and profit orientation
– The advertising license to do business
– Sourcing mass media news
– Flak and the enforcers
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Size, ownership and profit
orientation
• The dominant mass media outlets are
large firms which are run for profit
• Therefore, they must cater to the
financial interest of their owners – often
corporations or particular controlling
investors
• Size is a necessary consequence of the
capital requirements for the technology
to reach a mass audience
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Advertising licence to do
business
• Since the majority of the revenue of
major media outlets derives from
advertising (not from sales or
subscriptions), advertisers have acquired
a “de-facto licensing authority”
• News media must cater to the political
prejudices and economic desires of their
advertisers
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Source of mass media
news
• “…the large bureaucracies of the
powerful subsidize the mass media, and
gain special access [to the news], by
their contribution to reducing the media’s
costs of acquiring [...] and producing,
news. The large entities that provide this
subsidy become 'routine' news sources
and have privileged access to the gates.
Non-routine sources must struggle for
access, and may be ignored by the
arbitrary decision of the gatekeepers.”
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Flak and enforcers
• "Flak" refers to negative responses to a
media statement or program (e.g. letters,
complaints, lawsuits, or legislative actions)
• Flak can be organized by powerful,
private influence groups (e.g. think tanks)
• The prospect of eliciting flak can be a
deterrent to the reporting of certain kinds
of facts or opinions
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Implications business
• Leadership attempts to reform industrial
organisations need to be seen in this
context
– Information and knowledge that challenge
the status quo are obscured
– It is difficult to have an informed debate and
develop consensus around strategies that
address the things that need to change
– It is difficult to implement strategies that have
implications for power management
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ELITES WITH TOO MUCH TO
LOSE
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Global economic power –
mapping the architecture
• Mapping the architecture of global
economic power has become possible
with the development of data mining
techniques, with 2 people making
pioneering studies
– James B Glattfelder15, 16
– Thomas Piketty17
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147 companies that
control everything
• Glattfelder analysed 43,060
transnational corporations and share
ownerships linking them
– Global corporate control has a distinct bow-tie
shape, with a dominant core of 147 firms
radiating out from the middle
– Each of these 147 own interlocking stakes of one
another and together they control 40% of the
wealth in the network – a total of 737 control 80%
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Concentration of wealth
and inequality
• Piketty pioneered statistical techniques
that make it possible to track the
concentration of income and wealth
deep into the past
• Early twentieth century for America and
Britain, and late eighteenth century for
France
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and inequality13
• Findings
– Since 1980, a return to nineteenth-century levels
of income inequality – the Belle Epoque in
Europe and the Gilded Age in America
– When the rate of return on capital greatly
exceeds the rate of economic growth, “the past
tends to devour the future”: society inexorably
tends toward dominance by inherited wealth
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and inequality
• On a path back to “patrimonial
capitalism,” in which the commanding
heights of the economy are controlled
not by talented individuals but by
family dynasties
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• The industrial organisational form is part of
the fabric of global economic ownership
through which elites maintain power
• This presents a formidable barrier to the
fundamental changes anticipated for
the knowledge era, which may require
elites to sponsor the process of their own
disempowerment
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CASE STUDIES AND SCENARIOS
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Case studies
• Matrix organisations
– Challenging the best of both world’s argument –
efficiency, knowledge and continuity benefits
– Adaptive versus fundamental change
• Case study of a failed organisational
transformation initiative at a financial
services company18
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Potential scenarios
• The potential for technology to
liberate and oppress
– Zuboff’s vision for a distributed capitalism
– PRISM and other programs
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Visit www.oot.org
Bryan Fenech
Founder and Director About www.oot.org
• www.oot.org is the website of
Building the Organisation of
Tomorrow, a networked community
and set of resources to assist
leaders to meet the imperative for
organisational renewal
• All institutions are under increasing
pressure to adapt to 21st century
technological and socio-economic
forces. Successful leaders need
appropriate frames of reference to
manage these processes of
transformation; however, such
frames of reference are rare
• Find articles, presentations, book
reviews, and other resources
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References
1. Fenech, B. (2013) ‘Emerging Organisational Forms: Leadership
Frames and Power’, Proceedings of the 9th European Conference
on Management, Leadership and Governance, ACPI: Reading
2. Jacques, E. (2003) ‘Ethics for Management’, Management
Communications Quarterly 17(1): 136-142.
3. Dovey, K. and Fenech, B. (2007) ‘The Role of Enterpise Logic in the
Failure of Organisations to Learn and Transform’, Management
Learning, Vol 38, No 5, pp 573-590.
4. Zuboff, S. & Maxmin, J. (2002) The Support Economy: Why
Corporations are Failing Individuals and the Next Episode of
Capitalism. New York: Allen Lane.
5. Fenech, B. (2013) op cit.
6. Fenech, B. (2013) op cit.
7. Stigler, G. (1971) Theory of Economic Regulation, Bell Journal of
Economic Research, New York, Columbia University Press.
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References
8. Laffont, J.J. and Tirole, J. (1991) "The Politics of Government Decision
Making: A Theory of Regulatory Capture", Quarterly Journal of
Economics, 106(4), 1089-1127.
9. Hanson, J. D. and Yosifin, D. G. (2003) The Situation: An Introduction
to the Situational Character, Critical Realism, Power Economics and
Deep Capture, University of Pennsylvania Law Review, vol 152, p
129.
10. Potter, W. (2011) Green in the New Red: An Insider’s Account of a
Social Movement Under Siege, City Light Books: San Fransisco.
11. Potter, W. (2014) “Revised law could turn animal activists into
terrorists”, Sydney Morning Herald, 8th May 2014.
12. Walker, R. G. (1987) Australia's ASRB. A Case Study of Political
Activity and Regulatory ‘Capture’, Accounting and Business
Research, Volume 17(67).
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References
8. Goodfellow, J. (2013) “Regulatory Capture and the Welfare of Farm
Animals in Australia”, Voiceless Animal Law Lecture Series, University
of Sydney, 23 April 2013.
9. Herman, E. S. and Chomsky, N. (1988) Manufacturing Consent: The
Political Economy of the Mass Media, Pantheon Books
14. http://www.ted.com/talks/james_b_glattfelder_who_controls_the_
world.html
15. http://www.forbes.com/sites/bruceupbin/2011/10/22/the-147-
companies-that-control-everything/
16. Piketty, T. (2014) Capital in the 21st Century, Harvard University Press:
New York
17. Krugman, P. (2014) “Why We’re in a New Gilded Age”, The New
York Review of Books, May.
18. Dovey, K. and Fenech, B. (2007) op cit.
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