Managerial Dilemmas

Exploiting paradox for strategic leadership

John Storey, Graeme Salaman

• Publisher: Wiley-Blackwell
• Year: 2010
• Print ISBN:
  9781405160278
• Edition: 1
• eBook ISBN:
  9781444316599
• Topic: Business
• Subtopic: Organisational Behaviour
• Index: Business

In the midst of the most severe recession for 80 years there is little need to argue that organizations are beset by dilemmas and paradoxes. Confidence in prevailing business models and in the underlying assumptions underpinning business decisions over many decades has now been shaken. But it is not enough to rail against arrogance and greed. Within their own (flawed) assumptions bankers and corporate leaders were acting rationally. A major reason for the failure to anticipate and warn is that observers of organizations usually tend to view organizations in terms similar to those employed by the people who run them: as rational, sensible and objective, whereas, in fact, they are usually confused and confusing, paradoxical and contradictory entities. Paradox is at the heart of how organizations work (or don't work) yet the phenomenon has been strangely unstudied.

In an age of crisis and uncertainty, dilemmas and paradoxes are especially evident and prevalent. The fascination and the promise of paradox is that there is also a sense that there is a hidden truth entwined within the opposites. This we contend is a challenge for leaders. The ultimate responsibility of leadership is to make sense of these and to handle them in a competent manner. This demands a new mode of leadership. The management of dilemma and paradox it is contended, the essence of leadership today. Paradoxical forces provide a dynamism which, although often experienced as potentially threatening, discomforting and negative can also be exciting, promising and positive.

"The assumption that organizations are rational entities is challenged every day in the work environment by a rich reality of asymmetries between conflicting forces, complexity, hidden intentions and paradoxes. Anyone wanting to understand the real forces that govern organizations should read this book. A must read for modern leaders who have the intellectual honesty to lead organisations with open eyes and not with the over simplifications and clichés of the past"--Giovanni Ghisetti, Director Business Transformation, Coca Cola Enterprises Europe

"Storey and Salaman's description of the paradoxes which characterise leadership today is hauntingly accurate. Their intelligent optimism that those dilemmas can be met is as encouraging as it is challenging for those of us who have to do just that. Having read the insights in this book I now understand how their business advice was always so pertinent".--Andy Street, Managing Director of John Lewis

Part 1

INTRODUCTION

1

Exploiting dilemmas and paradoxes through a new mode of leadership

A century ago, Andrew Carnegie had this advice: ‘Concentrate your energies, your thoughts, and your capital. The wise man puts all his eggs in one basket and watches the basket.’ But of course the risk, then and now, is that no matter how attentive and focused you are, the basket you’re watching is simply the wrong one.

(Moyer 2008)

Knowing which ‘basket’ to watch and how to design, manage and watch it is a crucial set of skills for managers and leaders. It is our contention in this book that the myriad tasks of and demands on management can be reduced to five core essentials and that these broadly can be sequenced as follows. First, managers are charged with setting a sense of direction (for example, having an answer to the question ‘what business are we in?’); second, they are charged with shaping and structuring the array of capabilities and resources at their disposal into some shape and form; third, they are charged with maintaining and improving performance; fourth, they are expected to additionally enable innovation; fifth, they are expected to be able to adapt each and all of the above to meet changes in the environment of the organization such as changing customer and market demands. This set of core managerial roles is a combination of strategic and organizational capabilities. They do not easily fit within any single discipline or function. Moreover, we argue they are not easily reducible to a set of rational rules. On the contrary, the thesis of this book is that when taken separately and together these tasks and activities are subject to multiple dilemmas and paradoxes which defy conventional prescriptions and rules. Such a contention flies in the face of most current management thinking.

In general, managers and management theorists in the mainstream business and management literature over the past 25 years have taken, we maintain, a wrong turning. Guidance, lessons and prescriptions have become increasingly emphatic, increasingly ‘rational’ and increasingly misleading. Early social theorists as divergent as Weber, March, Simon, Gouldner and Merton recognized the dysfunctionalities and therefore dangers of order and of formal ‘rationality’ and tried to draw attention to the contradictions and paradoxes inherent in organizations and society. However, over the years, these insights often seem to have been lost. The emphasis gradually, but insistently, shifted to order and tidiness. Hence, the early insights have been neglected as formal rationality asserted its dominance during the high industrial and late industrial age. However, now this ‘industrial’ model is under stress. The old rules and strictures no longer seem to make sense. New projects, reforms and reorganizations are launched at an increasingly rapid rate and fail to meet expectations just as frequently. In response, ‘chaos theory’, ‘dynamic capability’, the ‘learning organization’ and a number of other such counter movements offer variable glimpses of this truth.

This tension has been accentuated in recent times because of rapid strides in communication technology and global competition - these forces expose the rational model to greater strain and reveal its deficiencies. For example, Prahalad and Krishnan (2008) show how, in the new business paradigm, products and services are at times inseparable, hardware and software merge, and consumption by users is part of production. Because of the intensity and speed of change, managers have increasingly been exposed to different cycles of reorganization and they find colleagues harder to convince with the latest idea. Multiple initiatives are launched. Projects multiply and their proliferation demands that they be consolidated into ‘programmes’ and placed within ‘Programme Offices’. However, the tensions between initiatives and priorities still tend to remain. There is growing awareness that the underlying problem is one of multiple logics and inescapable tensions (Eisenstat 2008).

Ideas such as devolved ‘strategic business units’, ‘empowerment’ or ‘team-work’, which appear eminently logical when considered in isolation, reveal themselves to be problematical when considered alongside competing logics. Studies of management decision making increasingly reveal organizational problems to be inherently multi-dimensional. Managerial decisions on the core issues of strategy, organizational form, managing performance, innovating and changing all involve tensions, dilemmas and paradoxes. Managing these tensions becomes the core competency of top managers under the new order. Ideas and solutions can rebound. For example, one of the most successful corporate growth stories of the past few decades has been that of Hewlett-Packard. That success was usually explained in part at least by reference to the code of values and practices known as ‘The HP Way’. When we interviewed one of the senior most UK-based HP Directors in 1999 he made this point:

The ‘HP Way’ is central to who we are. It’s not just a slogan or a list on a pocket-sized laminated card. It is very much a values-based organization, we try hard to value commitment for example and we value loyalty in both directions.

However, following a de-merger and a series of financial problems, a few years later the ‘HP Way’ was an idea used by employees to castigate a new management team whom they judged had ‘betrayed’ that promise. This is a pattern we have found in many other values-based organizations in recent years.

Organizations and management are under increasing pressure to meet multiple, often inconsistent, demands. Increasing technological change, global competition and workforce diversity reveal and intensify paradox. These kinds of disruptions expose tensions within organizations. For example, rising commodity prices or new international competitors raise new questions about sustainability, competitive advantage and core capabilities. Ambiguity fosters multiple, often conflicting interpretations of phenomena. David Day, European Chief executive of Lightspeed, a company within the global WPP Group, gave us an example:

In today’s climate, many large companies - not just WPP - with large complex systems, increasingly look across at businesses that are entrepreneurial, energetic and innovative and say to themselves ‘We would like to acquire one of those’. They bring it in and fit it into the financial systems of the broader organization. The founders tend to remain for a while and so the business never really gets integrated, they say ‘Don’t touch us, we’ll deliver’. Then the founders tend to leave and all of a sudden you are left with something which doesn’t deliver any more. That is very common, as the founders, the entrepreneurs who created the company, decide to leave and the spirit of the business goes with them.

Sometimes, trade-offs are required; at other times and in other circumstances they can be avoided. Seductive prescriptions often turn out to be oversimplified depictions. When we refer in this book to ‘managerial dilemmas’ therefore, we want to move beyond simplistic conceptualizations and to explore instead the rich territories of paradox, complexity, ambiguity and temporality.

Let us take an example from Hewlett-Packard. One of the UK-based Directors explained to us:

If you get a complex system and you add rules to it, it gets more complex. You see if you try to control complexity with structure, it gets worse. So, what HP has is a number of simple rules which are very powerful in the way that they drive things. One of those rules is: ‘You must come in under on expenses and over on quota. …’ Um, and if you don’t, then the men in grey suits arrive fairly soon. So, it’s fiscally fairly tight. And, the moment you’re going near breaching the simple rules the red flags start waving. Thus, in this way we seek to be both tight and loose.

Toyota provides another example. Conventionally, it is thought that there is a necessary trade-off between productivity and innovation. This is reflected in Abernathy’s work on The Productivity Dilemma (Abernathy 1978). However, Toyota’s phenomenal record in productivity gains at the same time as its impressive achievements in innovation have cast doubts on earlier conventional thinking (Liker and Hoseus 2008; MacDuffie 2008; Osono, Shimizu et al. 2008). As these studies reveal, there are a number of ‘radical contradictions’ at the heart of the Toyota method.

Abernathy’s analysis of the productivity versus innovation dilemma is important for a further reason. The fundamental lesson to be drawn from his work (supported in meticulous detail by data stretching over decades in the American automobile industry) is that when managers mishandle this dilemma they jeopardize whole firms and indeed whole industries.

Contrast this with the results of recent investigations behind the success of Toyota. Toyota’s unorthodox manufacturing system has enabled it to ‘make the planet’s best automobiles at the lowest cost and to develop new products quickly’ (Osono et al. 2008: 96). Between 1980 and 2006 its revenue grew 13-fold - an annual growth rate of 10.1%, and between 1997-2001 it opened 31 new plants around the world (Osono et al. 2008): 191-2. Moreover, its system has been widely emulated not only by the world’s leading automobile companies and manufacturing forms, but also by organizations in service industries such as hospitals. Detailed study of the Toyota Corporation has revealed that the key to its success is its subtle handling of - and indeed promotion of - contradictions. As Osono and colleagues observe: ‘The company succeeds we believe because it creates contradictions and paradoxes in many aspects of organizational life’ (2008: 98). In many areas it deliberately fosters contradictory viewpoints and challenges its managers and employees to find answers which transcend differences rather than settle for compromises. Examples of its paradoxical nature include: it takes big leaps yet is patient and moves slowly; it grows steadily and yet maintains a state of never-satisfied and indeed even a degree of paranoia; it has outstandingly efficient operations and yet seems to use employees time wastefully (for example including large number of people in meetings at which they often do not directly participate); it is frugal and yet spends heavily is selected areas; it maintains a strict hierarchy and yet prompts employees to challenge.

In order to foster these ‘contradictions’ Toyota combines both forces of expansion with complementary forces of integration. Its forces of expansion include the setting of highly stretching and near-impossible goals. Second, there is a huge emphasis on experimentation - most notably, Toyota encourages all employees to search for improvements by highlighting mistakes and failures. Third, despite its huge emphasis on efficiency and a standardized system, it also promotes and encourages local customization. These forces of expansion are complemented by forces of integration: the values of the founders are held in high esteem, these values are inculcated; the company is loathe to make any redundancies even in times of economic downturn and even when this policy costs money; Toyota also invests in communication across the board. Thus, the forces of expansion are balanced by the forces of integration in a manner which allows a restless forward momentum.

In these and other ways, Toyota exemplifies the contemporary manifestation of managing with paradox. It can be seen to represent a living embodiment of a post-modern, knowledge-based, manufacturing company. It seems to have rejected the logics of the industrial age and through its constant experimentation with contradictory forces made a ‘successful transition to the post-industrial, knowledge age’ (Osono et al. 2008: xii). Toyota actively embraced and cultivated contradictions and management through paradox. In their extensive six-year study of Toyota across numerous countries, Osono, Takeuchi and colleagues found that the company ‘actually thrives on paradoxes; it harnesses opposing propositions to energize itself’ (2008: xii).

Consider some examples of the contradictions: it thinks and acts both globally and locally - it has a Global Knowledge Centre and yet goes to extraordinary lengths to learn from and adapt to local cultures and settings. It combines hard and soft modes of management. It strives for short-term efficiency and associated incremental wins while also striving for long-term step-change gains. It cultivates frugality yet is willing to spend large sums on selected projects. It cultivates stability and yet also a mindset of paranoia. It is characterized by bureaucracy and hierarchy yet fosters a spirit of dissent. It maintains both simple and complex modes of communication. It sets very hard-to-achieve goals yet emphasizes the need for a strong sense of reality. It expects small scale experimentation and occasional audacious leaps.

The company is constantly restless. Tellingly, the Toyota President, Kaysuaki Watanabe, said: ‘The two things I fear most are arrogance and contentment’ (Osono et al. 2008: 214). He also observed:

We need to create a routine in which tacit knowledge and explicit knowledge can spiral upwards effectively. That requires human effort. We humans should go all out to create a solid educational routine that enables the knowledge level to spiral up … and to do it globally’ (Osono et al. 2008: 229).

The contradictions at play propel Toyota to a state of instability and disequilibrium while allowing it simultaneously to exploit hard-won routines. In this manner the platform of performance is moved ever higher in a spiral fashion.

In so far as the business and organizational environment is increasingly dynamic, with shorter product life cycles, technological shifts, changing fashions and new entrants, it can be argued that a crucial competitive advantage and indeed condition for survival will increasingly be the capability to manage paradox. One such paradox at the geopolitical level is that of China, the fastest growing economy of recent times and forecast soon to be the largest, which has developed an economy more capitalist than many western countries while maintaining a communist political regime.

One example of the apparent increase in paradox for corporations can be found in the shift in recent years from a simple competitive model of business to a more complex cooperative and collaborative approach. Organizations began to build collaborative relations and strategic alliances with competitors as well as with suppliers and customers. The coexistence of cooperation and competition brings advantages and tensions (Child and Faulkner 1998; De Wit and Meyer 1999). For example, Unisys and Oracle are working on several initiatives in financial services, outsourcing, the public sector and enterprise computing. They remain competitors and yet, on a global basis, they have developed a strategic ‘systems integrator’ partnership. In financial services, they combine Unisys’s expertise in payments with Oracle’s database capabilities.

There is also a fundamental paradox at the very heart of business strategy itself. Strategies that have the greatest chance of success, it has been noted provocatively, also have the greatest probability of failure. The paradox arises because companies base their strategies on specific beliefs or ideas about the future (this is a theme we explore in depth in Chapter 3). However, the future is uncertain and strategies succeed because of luck. It sometimes happens that companies do make what proves to be the right choice on that occasion. If they are less lucky, the same commitments prove to be the wrong ones - and enterprises fail (Raynor 2007).

Often, the management of paradoxes and dilemmas is left to the individual manager. For example, in one of our case companies (Marconi plc - a telecommunications switching-gear designer and manufacturer with a very chequered history) one of the directors who was overseeing a wide range of product groups made this observation about how they handled the demands of efficiency and learning/innovation:

I mean, there is a very delicate balance to be struck, because obviously we want a culture where meeting deadlines and quality standards is absolutely paramount. But it also has to be a culture where, when things going wrong, they are looked at in a positive light. Everybody’s striving very hard to meet targets but failure is looked at from the point of view of well … you know it’s looked at as an opportunity, it’s not a slagging-off that I have to hand out, you know you’re not going to try and criticize people and come down heavy. What you’re looking at is the way forward from the problem and looking at the way out. I mean, I thi...

Table of contents

• Title Page
• Copyright Page
• Dedication
• Preface
• List of case organizations
• About the authors
• Part 1 - INTRODUCTION
• Part 2 - THE SIX DILEMMAS AND PARADOXES
• Part 3 - CONCLUSIONS
• References
• Index