Evidence is emerging which indicates a command and control (top down) philosophy of leadership generally doesn’t work in business settings today. Instead, leaders today need to be open to new structures, processes, and styles that are open and inclusive, and that allow all employees the opportunity to build wealth and have a say in how the company operates.
Truly great companies understand their purpose and use their dedication to the purpose to build a culture that serves as a magnet for new talent, and a sounding bell and motivator for existing talent that is deeply aligned and passionate about the purpose they are serving. Leaders need to have a passion for their work, and know the purpose of their organization, exuding the essence of it in all thoughts, expressions, and behaviors with all stakeholders, at all times. S/he needs to be passionate and stay focused like a laser on bridging the gap that exists between that purpose, large or small, and how the company actually behaves day to day.
1. Align Your Team
To help bridge that gap, S/he must create alignment with all team members in support of the purpose. If leaders are not developing, articulating and moving each day towards making the purpose come alive within the organization, with meaningful and appropriate goals and rewards that are aligned with all stakeholders, then getting from where you are to where you want to be will be a much more complicated and frustrating process.
One way to accomplish the alignment with purpose is to establish a critical number. The critical number is a lagging indicator, which relates to why the company is doing what it does. It is the one thing that must be done this year, or this quarter, that is quantifiable, a number that everyone understands and is working towards. Achievement of the critical number should be tied to a bonus plan, whereby all employees are motivated to help achieve the critical number. The critical number is usually a financial number, such as profit before tax, but can also be pointing towards another metric, like employee engagement, or quality improvement, or employee turnover,
2. Lead Openly
Effective leadership today needs to be considerably more open than in the past. Top down command and control leadership simply doesn’t work in today’s business environment. Open leadership leverages the collective knowledge of work groups and encourages active debate. If natural work groups can come together in daily huddles, sharing ideas, challenges, and progress on drivers to the critical number, the entire workforce is engaged, aligned, and synchronized in the goal achievement process.
Managing a company that encourages and embraces the views of every employee requires an open organizational structure. Open leadership requires a degree of humility rarely found in leaders of the past, who were accustomed to telling employees what to do each day.
Case in point: Red Hat
Jim Whitehurst, CEO of Red Hat, an open organization, discovered shortly after he arrived in his new role as CEO that a decision he made got tabled by one of the collaborative teams because the team decided it wasn’t a good idea. The team opted instead to do something entirely different, which Whitehurst later agreed was best for the company. But the team members did not ask their CEO if they could have permission to change direction. They just changed direction on their own and accepted the accountability for their actions.
At Red Hat, and other ‘Open Organizations’, this type of behavior is not only permitted, but encouraged. Changing from a top down hierarchical organizational structure to one that is flat, cross functional, and collaborative requires a major shift in thinking on the part of every employee, but most importantly the CEO, and the leadership team. The CEO has to drive the process.
Managing in an open organization is very different than in a traditional top down organizational structure. It can be a very powerful shift, utilizing the collective intelligence of the entire staff of employees, resulting in greater profitability, better enterprise performance, increased cycle times, and greater employee and customer satisfaction.
3. Create a plan & hold teams accountable.
Once the purpose is understood, and the employees are in alignment with the core values and purpose, appropriate goals that are mutually negotiated with team members can be established and implemented, and the team can then be held accountable to achieve their targets.
A planning process must be initiated and installed that begins with market research and strategic planning, followed by a commitment to the strategy and sales plan. A forecast of the cost of goods sold relating to the sales plan must be developed, along with a clear understanding of the operating expenses to support the plan. If the plan is adopted, cash requirements must be projected. If the capital requirements are greater than what cash from operations can provide, then outside sources of cash must be considered.
Ideally this is a six-month process, with active debate, until a final plan can be adopted and installed. The final plan would ideally include a bonus structure where each employee would have the opportunity to earn up to one or two extra months pay if the top level bonus were paid out. It is critical that a basic level of profit be reached before any bonus can be paid. Bonus should only be paid on incremental levels of profit, and each employee should have the opportunity to weigh in on the bonus targets as they are being developed, which requires their active engagement throughout the budgeting process.
Once the plan is approved and installed, the game begins, and weekly huddles start to forecast and track progress against plan, with a running tallies of bonus achievement posted on the walls of the shop floor or in the public spaces for all to see. Each week, every employee can clearly see what their bonus might be if the goals are achieved. More importantly, each employee has an opportunity to be directly engaged in helping to achieve the maximum bonus payout.
The idea of changing the structure of organizations from traditional to open has not been embraced by many companies to date, even though some prominent companies operate in this fashion. It is possible that an entire generation of more experienced and older leaders need to retire before new structures can be assimilated.
We need to hire people who are in alignment with the core values and purpose of the company, give them an opportunity to participate in the planning process, encourage them to debate issues, and give them the education and tools to understand how business works, and what their role is in the overall process of making money, generating cash, and increasing enterprise value.