Management in turbulent times Prof Dr Peter Gomez

Management in turbulent times Prof. Dr. Peter Gomez

Gomez 2 We are caught in a trap Trap of complexity Trap of credibility Time for decisions e tim red qui Re Ava ilab le ti me Dynamics of decision situation Excessive demands lead to • Oversimplification • „Saddle decisions“ • Neglect of harmful side effects • Incompetent / improper leadership

Gomez 3 The complexity trap leads to uncertainty and alienation of society and economy Affluent society Uncertainty and alienation Myriads of offerings Complicated organizational structures

Gomez 4 The credibility traps leads to a crisis of confidence Lack of professionalism Crisis of confidence Lack of focus Refusal of responsibility

Gomez 5 How to escape the trap? Establishing understanding Gaining confidence

Gomez 6 Establishing understanding Societal role of the economy Understanding Customer orientation Simple organizational structures

Gomez 7 Gaining confidence Mastering the craft of Leadership Confidence Focusing on core issues Taking responsibility for the whole

Leadership - Focus and energy high 8 Disengagement Purposfulness Procrastination Distraction Focus Gomez low Energy high Source: Bruch, H. /Goshal, S. : Beware the Busy Manager. Harvard Business Review, February

Gomez 9 Handling Complexity I

Gomez 10 Handling Complexity II - Traffic example Variety reduction Decision situation by: Drive on the right Variety Management Variety generation by: Traffic lights or Roundabout

Gomez 11 Handling Complexity III - Management in turbulent times Variety reduction Decision situation by: Identification of the rules of play • Business logic • Environmental dynamics • Corporate culture Variety Management Variety generation

Gomez 12 Business Logic I: Model of Systemic Control Source: Schwaninger, M. : Managing Complexity - The Path Toward Intelligent Organizations, Systemic Practice and Action Research, Vol. 13, No. 2, 2000, pp. 207 -241

Gomez 13 Business Logic II: The Value Pendulum Shareholder Value Management Value (80‘s) Stakeholder Value (00‘s) (90‘s)

Gomez 14 Business Logic III: Shareholder Value - Stakeholder Value EMPLOYEES “EMPLOYABILITY" Maximum Shareholder Value CUSTOMER GOVERNMENT “APPROPRIATE TAXES" OPTIMIZATION OF SHAREHOLDER VALUE SUPPLIERS "PARTNERSHIP" “QUALITY, PRICE, SPEED"

Gomez 15 Business Logic IV: Strategies - Value Drivers - Value Creation Business Strategy Corporate Strategy Owner Strategy Revenue Growth Profit Margin Cash Flow from Operations Profit Depreciation Investment Cost of Capital Income Tax Free Cash Flow FCF Investment Working Capital Investment Fixed Assets Income Taxes FCF 30 Dynamization 25 20 15 10 5 0 -5 -10 -15 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Present Value/Risk

Gomez 16 Business Logic V: Business Life Cycle

Gomez 17 Environmental dynamics: The Innovator‘s Dilemma Product Performance s to logie o ue s d techn s mand gre ing nce de the market ro in ma P ta Perfor nd of s u high e s at the Disruptive technological innovation " s logies e rvic chno els") /se cts ive te s mod u rod srupt ines p ew o "di bus N t ive due srupt i ("d d deman mance Perfor market d of the ow en at the l Source: Christensen, C. M. : The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Boston 1997 Performance customers can absorb in the core market Time

Corporate Culture: the Apple Case I Jobs --- Pionieer Phase Creative Chaos Motorbike Person 18 ic ns tri In m Sy . M System Gomez tri Ex ic ns Mission . M Identity rm Fo Efficiency Effectiveness "Computers to all people" Context Divisions Te t en an rm Polycentr. Fl at H. Pe St H. Monolyth. p ee Hierarchy l bo m po ra ry Independent Groups

Corporate Culture: the Apple Case II Jobs Sculley Creative Chaos Organization top-down --- Pionieer Phase --- Growth Phase Motorbike Apple Family Person 19 ic ns tri In m Sy . M System Gomez tri Ex ic ns Mission Close to Markets . M Identity rm Fo Efficiency Effectiveness "Computers to all people" Cost Management Context Te t en an rm Polycentr. Fl at H. Pe St H. Monolyth. p ee Hierarchy Functional l bo m po ra ry Divisions Strengthen the Top Independent Groups Change

Corporate Culture: the Apple Case III Jobs Sculley Spindler Creative Chaos Organization top-down Culture of Innovation --- Pionieer Phase --- Growth Phase --- Maturity Phase Motorbike Apple Family Clear Objectives Person 20 ic ns tri In m Sy . M System Gomez ic ns tri Ex . M Identity rm Fo Efficiency Effectiveness Context Te t en an Hierarchy Functional Principle of Subsidiarity Polycentr. Fl at H. "Computers to all people" Cost Management Process Organization rm St H. Monolyth. p ee Pe Mission Close to Markets Apple Cult l bo m po ra ry Divisions Strengthen the Top Independent Groups Change Clear Primary Organization

Corporate Culture: the Apple Case IV Jobs Sculley Spindler Jobs II Creative Chaos Organization top-down Culture of Innovation Organization top-down --- Pionieer Phase --- Growth Phase --- Maturity Phase --- Transition Phase Person 21 ic ns tri In m Sy . M System Gomez ic ns tri Ex . M Identity l bo rm Fo Efficiency Effectiveness Context Te "Computers to all people" Cost Management Process Organization Cost Management t en an Hierarchy Functional Principle of Subsidiarity Hierarchy Polycentr. Fl at H. rm St H. Pe p ee Monolyth. Mission Close to Markets Apple Cult Motorbike Apple Family Clear Objectives m po ra ry Divisions Strengthen the Top Independent Groups Change Clear Primary Organization

Gomez 22 The law of requisite variety - Management in turbulent times Variety reduction Decision situation Variety Management Variety generation by: Proactive decisions and measures • “Head”: Holistic roadmaps • “Hand”: Jiu Jitsu Management • “Heart”: Leadership and Accountability

Gomez 23 “Head” I: The new St. Gallen Management Model

Gomez 24 “Head” II: The VIP-Cycle

Gomez 25 “Head“ III: Ciba Geigy Vision 2000 (from 1989)

Gomez 26 Head IV: The Holcim Strategy House Value Creation Goal Strategy Mindsets Base Product Focus Sustainable Environmental Performance Geographic Diversification Better Cost Management Permanent Marketing Innovation Local Management Global Standards Human Resource Excellence Corporate Social Responsibility People Source: Paul Hugentobler (2003): Cement Industry Development, Holcim’s Global Strategy and Operational Roadmap 2003 - 2007, Management Seminar Fall 2003.

Gomez 27 Head V: Holcim Perspectives Perspective A global company aims to. . . Value Creation . . . create value for the relevant stakeholders like customers, shareholders, employees and society. Strategy . . . create competitive products and services in a geographically diversified context. Its success is measured compared to the best of its peers. Mindsets . . . align its activites with sustainability, cost consciousness, innovation focus, people‘s development, and social fairness. People . . . consider the people as the main drivers of success. It respects, challenges and promotes them.

Gomez 28 Head VI: Holcim: The Company Network + - + + + EBITDA + + Production facilities + Portfolio of mature and emerging markets + + Safe/attractive workplan Global standards Motivation, Qualification, Professionality, + Teamwork + HVA + + Leadership and internal communication Product and service innovation/ differentiation + + - Efficiency Price Consistent quality / reliability + Image + + Concentration on core products + Optimization natural - resources Costs Customer satisfaction Sales + + Learning environment + People development + Geographic diversification + + + Investments +

Gomez 29 “Head“ VII: Convergence of Media, Computer and Telecom Industries Metcalfe’s Law Moore’s Law Deregulation Conduit (Telecoms) Gilder’s Law Digitisation Computing (IT) New media Globalisation Content (Media) Financial markets’ interest Electronic distribution platforms

Gomez 30 “Head” VIII: Convergence Value Chain/Value System Layer Models Cybernetic Laws Strategy Models for Emerging Industries ? Porter Grove; Bane, Bradley & Collis Kelly ? Brown & Eisenhardt

Gomez 31 “Head” IX: Transformation of the IT-Sector 1980 - 1995 Vertical Integration 1980 Horizontal Integration 1995 Sales & Distribution Application Software Retailer Application Software Operating system Computer Superstores DOS and Windows Apple Mail-Order Word Perfect Word Compac Dealer Packard Bell etc. OS/2 Mac Hewlett Packard IBM UNIX etc. Chips IBM DEC Sperry Univac Intel Architeture RISCs etc. Wang Source: Grove, A. S. : Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company. London (Harper

Gomez 32 “Head” X: Towards a new layer model of the converging industries IT Telecom Radio Set top box PDA PC Phone Access Application e-mail Media Household Appliance SMS Internet telephony Communication Routing Fibre optic Packet switching TSAP Transfer TV (application dependent) (application independent) Circuit switching ATM Wireless Cable (Copper, Coax) Transmission Satellite Programme Packaging Publication Pictures Words Content Voice Music Data Video

Gomez 33 “Hand“ I: Characteristics of High Reliability Organizations (aircraft carriers, nuclear power plants) Preoccupation with failure • Learn from near misses not from success Reluctance to simplify • create nuanced pictures of a complex world, don’t follow the dominant logic Sensitivity to operations • detect latent failures and symptoms Commitment to resilience • keep errors small, improvise workarounds Deference to expertise • push decision-making down, do not treat crisis times like normal times Source: Weick, K. / Sutcliffe, K. : Managing the Unexpected: Assuring High Performance in an Age of Complexity. San Francisco ( Jo

Gomez 34 “Hand“ II: Cybernetic Rules (Kelly) Distribute being Control from the bottom up Cultivate increasing returns Grow by chunking Maximize fringes Honor your errors Pursue no optima; have multiple goals Seek persistent disequilibrium Change changes itself Source: Kelly, K. : Out of Control : The New Biology of Machines, Social Systems and the Economic World. Addison

Gomez 35 “Hand“ III: New Rules for the New Economy (Kelly) Embrace the swarm Increasing returns Plentitude, not scarcity Follow the free Feed the Web first Let go at the top From Places to Spaces No harmony. All flux Relationship tech Opportunities before efficiencies Source: Kelly, K. : New Rules for the New Economy : 10 Radical Strategies for a Connected World. Penguin B

Gomez 36 Hand IV: Jiu-Jitsu principle

Gomez 37 “Heart“ I: Credibility Professionalism • Master your job, live up to highest performance standards Leadership • High energy, high focus Responsibility • Be accountable