The Socio-Economic Approach to Management

Steering Organizations into the Future

John Conbere, Alla Heorhiadi

• Publisher: WSPC
• Year: 2018
• ISBN:
  9789813233003
• Topic: Business
• Subtopic: Organisational Development
• Index: Business

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Many organizational leaders may not even realize that most of their strategic decisions are made without accurate or full information. And yet more than 40 years of socio-economic research indicate that around 40% of what happens economically in organizations is not taken into consideration by traditional accounting. This lack of information affects an organization's effectiveness by turning organizational functions into dys-functions which leads to hidden costs. Socio-economic research shows that average hidden costs are more than $20,000 per employee per year.

Socio-Economic Approach to Management (SEAM) is a different way to lead and manage organizations — or to put simply steer them. What differentiates SEAM from traditional management? First, SEAM focuses on both the people and economic sides of the workplace. Second, SEAM identifies and reduces hidden costs through engaging employees and developing their potential. The results are increased efficiency and profitability, sustainable organizational development, and higher employee engagement.

SEAM was developed in France and is little known in the US. This book provides a sound introduction to SEAM for the English-speaking audience. The book will be of interest for organizational leaders and managers who search new ideas, techniques, and tools to increase the efficiency of their organizations. The book will also be beneficial for change management and HR practitioners.

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--> Readership: Graduate students and practitioners interested in organizational management and change. -->
Keywords:Socio-Economic Management;SEAM;Management;Organizational Effectiveness;Human PotentialReview: Key Features:

• Provides a comprehensible English introduction to a socio-economic approach to management and organizational change, which was developed in France
• Summarizes socio-economic theory and describes the essential socio-economic management tools
• Includes the experience of American consultants who have implemented SEAM in different types of organizations, industries, and US states

Chapter 1

What Is Different About SEAM: A Quick Peek

When learning and trying to understand new information, people tend to parallel this new information with what they already know. Thus, very often, the first question people ask is how socio-economic approach to management (SEAM) is different from other change management or consulting approaches. This chapter provides a brief summary of the most important, and sometimes radical, ideas that differentiate SEAM from other disciplines. In later chapters, these concepts are elaborated in more detail.

Socio-economic focus. An efficient workplace must deal with the human side as well as the profit, or economic, side. This is what socioeconomic is all about. Henri Savall has a nice way to explain this term. He keeps a coin in his pocket and when people ask him about SEAM, he shows them the coin. He first holds it with someone’s (depending on the country and coin) profile up, “What do you see here? A human, or socio.” Then he turns it and exposes the other side with the value of the coin, “What do you see now? Money or economics. The whole coin is socio-economic. The sides do not work without each other.” His point is that one cannot separate the people side, or “socio,” from the economic side, or productivity and profit, without creating a distortion. The separation is delusional and only hurts one’s understanding of an “organizational coin.” The delusion has warped management in the modern workplace. The current mental model of management places much more attention on the economic side rather than on the people side, or as it is frequently called, dismissively, “the soft side.” Ironically, focusing only on the economic side leads to a reduction of organizational productivity and profits in the long term.

It is also incorrect to assume that SEAM has two foci — people (socio) and financial results (economic). The focus is one, and it is symbolized by the hyphen in the word “socio-economic.” Each provides a different view of the same phenomenon. Linguistically, a hyphen’s function is to join two ordinarily separate words into one single word. Therefore, “socio-economic” becomes a single word which represents the only focus of SEAM.

Human potential. The socio-economic focus allows for developing human potential — another cornerstone idea of the socio-economic theory. SEAM is based on the premise that the source of value added in organizations lies in developing human potential. This premise challenges the neo-classical economic theory that emphasizes the role of capital in increasing value added, as well as the Marxist economic theory with its idea that labor is the source of value added. According to the SEAM theory, the way to enrich an organization’s profit is to invest in people and grow their potential. When people develop, they become more engaged and more interested in contributing to the organization’s well-being. All people have potential and, if they are in the right place, they can add value to an organization.

A different mental model of management. Modern Western organizational management theory is rooted in concepts developed during the beginnings of the Industrial Revolution in the late 1800s and early 1900s, and is shaped by a series of thought leaders of that time. More than a century later, this theory still remains the dominant mental model of management of the great majority of leaders in the Western world. This mental model includes a set of flawed beliefs about the human nature, work, and workplace. According to this model, employees are a commodity, human capital, which in the time of financial crisis should be disposed of. Savall and his colleagues named this mental model the Taylorism, Fayolism, Weberism (TFW) virus. This concept is so radical that it gets the most pushback from many managers and is the least understood. The concept challenges the way modern organizations are being managed.

The role of management. One of the goals of SEAM is to change how people manage. While it may be politically incorrect to say this about management, it is necessary to identify that the cause of many organizational problems is poor management. Often, people are promoted to managerial positions based on their technical knowledge or skills. However, being a good professional does not automatically make people good managers, as knowing and managing a business process is different from managing people. Some managers, or supervisors, do not have any managerial training or knowledge of management tools, and sometimes they may have little to no training in interpersonal communication and conflict management. Many managers are taught some very poor habits, and/or they pick these habits up through the examples of management they see around them.

Poor management is not the fault of the individual managers; it is both a failure of an organizational system and the result of the dominant mental model of management. Therefore, during the SEAM intervention in an organization, managers are trained and sometimes to retrained, so they are effective in their role of steering people toward organizational strategic goals.

Changing the system vs. changing individuals. Frequently, when there is a problem in an organization, the tendency is to blame individuals. However, an organization is a system and if something does not work, then the system becomes unhealthy. The unhealthy system is the problem, so blaming individuals will not fix the organizational system. In current business practice, blaming employees for problems is quite common. Blaming is also unethical because it is the unhealthy system’s dysfunctions that make employees less effective. Organizational problems and dysfunctions are what evaporate people’s energy. Usually, most employees try to do their best and they are willing to contribute to the success of their organizations. SEAM’s focus is on fixing the system without attaching the blame for problems to individuals.

Whole system intervention. SEAM intervention deals with whole system change. The intervention starts with the top leaders and cascades down through the organization to reach all parts of the organization. In the first year of a typical SEAM intervention, the leaders and two to three silos (depending on the size) are part of the intervention. Each year, more silos are added, until the whole organization has been involved in SEAM. The systemic nature of SEAM pertains not only to intervening with the whole organizational system but also in the way the intervention is carried out. The intervention is conducted by a team of intervener-researchers, who bring much experience and expertise to shape each intervention. The interaction of two systems — the organization itself and the external consulting team — works better than when a single consultant tries to change an organization.

Hidden costs analysis. While a SEAM intervention may look like other organization development and change interventions, one of the biggest differences is calculating hidden costs, or in other words, attaching a financial figure to things that do not work. Knowing that there are some problems in an organization is not a big surprise, yet seeing the value of what the organization loses due to dysfunctions can be shocking. To help the reader understand what amount of loss the organization deals with, it is sufficient to say that the average amount of hidden costs for an average organization would be more than $20,000 per employee per year. In hightech companies or heavy-duty manufacturing, this number may rise to $80,000 per employee per year. One can do the math and by multiplying this number with the number of employees, it is easy to see how much a certain organization loses annually.

Information about hidden costs can benefit the organization in two ways. First, when employees, and especially leaders, see the numbers, they are more eager to invest time and effort into resolving the most expensive and risk-generating issues. Second, hidden costs analysis provides leaders with additional information, which they usually do not have when making decisions. The Institut de socio-économie des entreprises et des organisations (ISEOR) research supported Savall’s claim that modern accounting does not measure around 40% of what happens financially in an organization. This loss is the result of hidden costs. For an organization to be efficient and stay competitive in the market, leaders need accurate and full information for decision-making. Calculating hidden costs fills the gap between traditional accounting and financial reality in which the organization operates.

The timing of the intervention. When talking about the timing of SEAM interventions, it is important to mention two aspects — pace and duration. In terms of duration, SEAM looks for an organization’s commitment to the process for at least a year. While simple changes from the intervention can be seen immediately, the most important and lasting changes begin to become obvious by the end of the first year. Each year of the intervention, the organization sees a higher return on investment. By the end of the third year, the socio-economic mental model has rooted, the organizational culture changed, managers know how to manage well, all of which keep changes in place without needing the interveners’ support. The organizational system has healed and is now healthy.

The pace of the intervention is very deliberate, the meetings of interveners-researchers and actors involved in the intervention happen monthly. When it comes to serious changes, there is no rush. A SEAM intervention is not a sprint. It can be compared with a marathon in terms of the distribution of time and effort. Setting a reasonable pace is very important in both organizational change and distance running. In both, the success is measured in the end. The SEAM interveners often must slow down employees, so they do not jump to the “quick fix” of organizational problems before they understand the root causes of the problems. The intervention process is designed thoroughly and each step of the process has its logic. The pace of an intervention helps in maintaining this logical flow toward creating sustainable change.

Actors. To recognize the importance of every person within an organization, instead of using the word “employees,” SEAM calls all people in an organization “actors.” The term “actors” comes from the European sociology and has the implication that employees in different positions, with different professions are equally important for the success of the organization. One’s position does not make the person more important or less important. All actors play some role in the organizational drama and are necessary for an organization to succeed.

Intervener-researcher. SEAM practitioners are trained to be “intervener-researchers,” which is, in a way, similar to what in the US is called scholar-practitioners. The intervener-researchers conduct interventions in organizations, and the data collected and analyzed through the intervention process are added to the research database of ISEOR.

Every SEAM intervention conducted by ISEOR and its members since 1973 has served as a research case study that helped to validate and improve the socio-economic theory. The theory shaped the intervention process, or practice, and practice contributed to the theory’s robustness. In this way, the gap between practice and theory is bridged. Over 1,800 interventions in different types of organizations, industries, and countries helped to adapt and enrich the socio-economic theory and create quite a unique 40-plus-year-old database of change interventions. In addition, a SEAM contract discloses the intention to conduct research and publish its results. The organization may choose to identify itself in the published research or stay anonymous.

The difference between intervener-researchers and scholar-practitioners is that the latter do not have a common practice for the collection of data about organizations that receive consulting services, do not have a centralized site for storing and analyzing the research data, and usually do not have the research and publication intent included in the contract.

Social responsibility. Capitalism can be beneficial or destructive for nations. Capitalism that has few guidelines or restrictions allows the rich to dominate, to compound their riches, while the people, who do the work, receive a minimal reward for their labor. “Socially responsible capitalism” balances the rewards of capitalism so that benefits of work are shared by owners, leaders, and workers. In addition, there is recognition that organizations have a duty to serve the common good as well as owners or stockholders. In socio-economic theory, respect for each individual person goes hand in hand with the effort to increase profits.

Summary

SEAM is based on several concepts that radically differ from mainstream economic and management beliefs about effective and profitable organizations.

•Human potential is the sustainable source of value added in the workplace.

•There are some serious flaws in the dominant mental model of management in Western societies, which causes poor performance of organizations.

•Poor organizational performance is the product of organizational dysfunctions and hidden costs. The average hidden costs exceed $20,000 per employee per year.

•The most effective organizational change involves the whole system and begins with leaders.

•Consultants, who help organizations to improve performance, should also be researchers contributing to academic knowledge. Thereby intervener-researchers bridge the common gap between theory and practice.

•Organizations have a duty to society as well as to owners and shareholders, a responsibility that can lead to socially responsible capitalism.

Chapter 2

The Core SEAM Concepts

The socio-economic approach to management (SEAM) is an umbrella for the socio-economic theory, the SEAM change intervention, and SEAM management tools and tactics. These three elements are much intertwined — the theory feeds the practice, which in turn is based on theory. The tools are part of practice, yet the underlying philosophy behind the management tools is rooted in the theory. This chapter describes the most important concepts of the socio-economic theory that shape the SEAM practice.

The SEAM Four-Leaf Clover

The four-leaf clover is a metaphorical image that reflects a core tenet of SEAM (see Figure 2.1). Every organization has structures and behaviors. Structures — processes, rules, organization charts, and buildings — are the things that shape the work. Behaviors are what actors do. The fourleaf clover is an illustration of what happens in an organization. The structures and actors’ behaviors interact with and influence each other and make the organization work, or function. The organization is supposed to perform many different functions, but when the functions do not work well, they turn into dysfunctions. Consequently, anything that does not work has a cost, or a waste, thus dysfunctions create hidden costs. What happens in the four petals of the clover, i.e. shapes economic performance. The more the dysfunctions, the poorer the economic performance.

Figure 2.1. The SEAM four-leaf clover.

Most modern organizations, in their effort to improve their effectiveness, typically focus on changing the structures and/or behaviors. Examples in changing structures are changing the organizational chart, buying new equipment, implementing software, or IT systems. Changes in behaviors may take forms of training employees, implementing new incentives or restrictions, or anything that aims at changing people’s behavior. The SEAM theory posits that such direct changes in the workplace are not sustainable and often fail.

There are two reasons these direct changes fail. One reason is that people usually resist when change is forced or imposed upon them. The improvement of processes (structure) may be necessary but when workers do not believe they have any say in the changes, they might resist these changes. Resistance may take different forms: workers may not comply with orders; they may stop caring, rebel, quit, or do anything to act out their displeasure. An example of this failure can be seen in the attempts to implement Lean in the US. Most often, Lean efforts do not sustain in the long term.

The other reason that change fails is because while changing structures or processes, an organization may forget about the needs of those who operate these structures and processes. In other words, the human side of the workplace is ignored. For instance, people need to be heard and feel respected. At the same time, in many workplaces, leaders believe that only leaders know enough to make changes, including how to fix problems in the workplace. This tacit belief is rarely challenged even though the premise is insulting to the intelligence and ability of workers. If workers were respected, they would be part of any attempt to correct problems in the workplace. Usually, the workers on the floor are the ones who know the details of the problem and the possible solutions.

Changing structures can lead to firing people. There many euphemisms to cover up the act of firing workers, such as laying people off, letting people go, “down-sizing” or even “right-sizing” the organization. When changing structures leads to firing actors, the fear of losing one’s job and income triggers resistance to change. Workers who are not fired, may have survivor’s guilt, may feel unsafe, and lose trust in leadership and organization. This is another example of how not addressing the human side will undermine changes in structur...